85% of Your Social Security Can Be Taxed and Most Retirees Never See It Coming

Most retirees know their Social Security benefits might be taxed. Fewer know exactly which number determines how much. That number is called combined income, and where you land relative to the IRS thresholds will decide whether 0%, 50%, or 85% of your benefit is subject to federal tax in 2026.

The Number That Determines Everything

Combined income is your adjusted gross income, plus any tax-exempt interest (such as municipal bond interest), plus 50% of your annual Social Security benefit. That sum is the only figure that matters.

The IRS thresholds that apply to it have not changed since 1984. For single filers, up to 50% of benefits become taxable once combined income exceeds $25,000, and up to 85% become taxable above $34,000. Married couples filing jointly hit those same tiers at $32,000 and $44,000.

Because these thresholds are frozen while benefits rise with inflation each year, more retirees cross them automatically. The Consumer Price Index has climbed from 319.785 in March 2025 to 326.588 by January 2026, a steady upward drift that pushes nominal Social Security payments higher without any corresponding adjustment to the tax thresholds. Your benefit grows, the threshold stays fixed, and more of your income becomes taxable without Congress doing anything.

Where Interest Income Quietly Adds Up

The piece most retirees underestimate is investment income. With the 10-year Treasury yield currently at 4.09%, retirees holding CDs, bonds, or Treasury securities are earning meaningfully more interest than they did a few years ago. That interest flows directly into the combined income calculation. A retiree with $200,000 in a CD ladder earning 4% would add roughly $8,000 in interest income to their combined income total, potentially crossing a threshold they would otherwise have stayed under.

Three Paths Worth Knowing

1. Roth conversions before claiming: Moving money from a traditional IRA to a Roth account before Social Security begins reduces future required minimum distributions, which count toward combined income. This works best for retirees in their early 60s with a gap between retirement and benefit claiming.
2. Holding municipal bonds: Tax-exempt interest still counts toward combined income, so munis are not a perfect solution. But they avoid adding taxable income, which can help manage the overall calculation.
3. Coordinating withdrawal timing: Pulling from Roth accounts in high-income years rather than traditional IRAs can keep combined income below the next threshold. The 50% tier is manageable; the 85% tier is where tax drag becomes significant.

What to Check Right Now

Add up your expected AGI for 2026, your tax-exempt interest, and half your projected annual Social Security benefit. That total tells you exactly which tier you are in. If you are within $3,000 to $5,000 of a threshold, small adjustments in withdrawal strategy or income timing can make a real difference. The threshold did not move. Whether you stay below it is within your control.