The Hidden Tax Torpedo: How Social Security Can Push You into a HigherTax Bracket

For many retirees, Social Security feels like a well-deserved reward after decades of work. But there’s a hidden catch that surprises millions each year — up to 85% of your Social Security benefits can be taxed. This phenomenon, known as the tax torpedo, happens when additional income in retirement unintentionally triggers taxation of your benefits and pushes you into a higher tax bracket.

The IRS uses a formula called provisional income to determine how much of your Social Security is taxable. Provisional income includes 50% of your Social Security benefits plus all other taxable income and even tax-exempt interest. Once your provisional income exceeds certain thresholds ($32,000 for married couples, $25,000 for singles), part of your Social Security becomes taxable. Cross the next threshold ($44,000 married / $34,000 single), and up to 85% of your benefits could be taxed.

Consider Tom and Linda, both 67, who receive $40,000 in combined Social Security benefits and $35,000 from Tom’s IRA. They thought their income would stay low enough to avoid

taxes. But when they withdrew an extra $10,000 for a car, it pushed their provisional income past the threshold, causing 85% of their Social Security to become taxable. That $10,000 withdrawal resulted in nearly $3,000 of unexpected taxes — a costly surprise.

Strategies to Avoid the Tax Torpedo

• Strategic Roth Conversions: Converting traditional IRA funds to Roth during lower-income years can reduce future taxable income and minimize how much Social Security is exposed to tax.

• Withdrawal Sequencing: Pull from taxable accounts first, then tax-deferred accounts, and leave Roth funds for later years.

• Charitable Giving through QCDs: Qualified Charitable Distributions from IRAs (for those age 70½+) satisfy RMDs while keeping income off your return.

• Delay Social Security: For those with other income sources early in retirement, delaying Social Security can create a tax-efficient window for Roth conversions.

The tax torpedo is one of the most overlooked retirement challenges. It’s not about how much you earn — it’s where your income comes from. With the right planning, you can keep more of your Social Security income working for you and less going to the IRS.

About Keystone Tax LLC

At Keystone Tax LLC in Eau Claire, Wisconsin, we specialize in retirement tax planning — helping clients reduce unnecessary taxes, maximize income, and build confidence for their financial future. To schedule a no-cost consultation, visit www.keystone-tax.com or call (715) 835-6022.