Social Security

Taxation of the Social Security benefits started in 1984, and it is by far one of the most difficult to avoid stealth taxes, and it’s all due to the low-income threshold. This threshold makes reference to “combined income”, which is the total amount of adjusted gross income, nontaxable interest, and half of your Social Security benefits.

Single individuals who have a combined income of $25,000 to $34,000 are bound to be taxed up to 50% of their benefits and up to 85% on amounts above $34,000. Also, joint return filers who own a combined income of $32,000 to $44,000 are taxed on up to 50% of benefits and as much as 85% on amounts above $44,000.

However, Social Security is different than other income-sensitive thresholds, as it has never been adjusted for inflation. Also, taxing Social Security benefits is a double stealth tax. The inclusion of up to 85% of benefits in taxable income, besides increasing tax liability, might also increase marginal and long-term capital gains tax rates.

Other potential reasons might be increased Medicare Part B and D premiums, but also increased exposure to the net investment income tax.