Social Security taxation is based on income thresholds from 1984. That’s not a typo. 1984. The rules haven’t been touched in 41 years, which means thanks to plain old inflation, more and more retirees get dragged into paying taxes on their benefits every single year.
VA disability benefits, on the other hand, remain blissfully, completely tax-free.
To make things… interesting… Congress did add a new $6,000 senior deduction for 2025. It might offset some of the damage—if you qualify, that is, and if you use it before it expires in 2028. Because, of course, it expires.
Let’s dive into one of the more absurd quirks of the American tax system, where we tax retirement benefits using rules older than the internet, cell phones, and the fall of the Soviet Union.
Back in 1984, Congress decided Social Security benefits should be taxable if recipients had “substantial income” from other sources. They set the thresholds at $25,000 for singles and $32,000 for married couples. These were reasonable numbers at the time, when the average American household earned about $22,000 a year.
Fast-forward to 2025. Those exact same thresholds are still on the books. The average household now earns over $75,000. But Congress? They’ve apparently been too busy to update numbers from the Reagan administration.
How Social Security Taxation Actually Works
The whole mess hinges on something called “combined income” (or “provisional income” if you want to sound extra-fancy at parties). Here’s the back-of-the-napkin formula:
Combined Income = Your Adjusted Gross Income + Your Nontaxable Interest + Half of Your Social Security Benefits
Once you’ve done that cursed math, here’s what happens:
For single filers:
- Combined income under $25,000: Your Social Security is tax-free.
- $25,000 to $34,000: Up to 50% of your benefits become taxable income.
- Over $34,000: Up to 85% of your benefits become taxable income.
For married couples filing jointly:
- Combined income under $32,000: Tax-free Social Security.
- $32,000 to $44,000: Up to 50% taxable.
- Over $44,000: Up to 85% taxable.
“Up to 85% taxable” does not mean the government takes 85% of your check. It just means 85% of your Social Security benefits get tossed onto the pile of your other taxable income, all of which gets taxed at your regular rate. It’s just… more pile.
A Real-World Example
Meet Bob and Carol, a retired couple filing jointly. They get $30,000 in Social Security. They also have $40,000 from Bob’s pension and pull in $5,000 in interest from savings.
Their “combined income” calculation looks like this:
- AGI (pension + interest): $45,000
- Half of Social Security: $15,000
- Total combined income: $60,000
Since $60,000 is way over the $44,000 threshold, up to 85% of their Social Security ($25,500) becomes taxable. If they’re in the 12% tax bracket, they’ll pay about $3,060 in federal taxes just on their Social Security.
That 2.5% cost-of-living adjustment they got for 2025? It gave them an extra $50 a month, but it also pushed them further over that 1984 threshold, making even more of their benefits taxable. The gift that keeps on taking.
VA Benefits: The Good News Story
Now for a deep, cleansing breath: VA disability compensation is tax-free. Period. No thresholds, no calculations, no nonsense.
This includes:
- Disability compensation payments
- Pension payments
- Education benefits (GI Bill)
- Vocational rehabilitation benefits
- Grants for wheelchair-accessible housing
- Grants for adaptive vehicles
- Dependency and Indemnity Compensation (DIC) for survivors
The IRS doesn’t want to see these on your tax return. Don’t report them. Don’t worry about them.
Military retirement pay is taxable—that’s a pension. But VA disability compensation for service-connected conditions is not. If you get both, only the retirement pay gets taxed.
The Magical Math of Having Both
Your VA disability benefits don’t count toward your “combined income” for Social Security. They don’t exist. So, if you get $20,000 in VA disability and $25,000 in Social Security, with no other income, your calculation is:
- AGI: $0 (VA doesn’t count)
- Half of Social Security: $12,500
- Total combined income: $12,500
You’re well under the $25,000 threshold, so your Social Security stays 100% tax-free. Your VA disability was already tax-free. You just won the tax lottery.
The New Senior Deduction for 2025
Congress actually did something semi-helpful in 2025 by adding a new deduction of up to $6,000 for seniors aged 65 and older. This is on top of the standard deduction.
The fine print:
- It’s for singles with an AGI of $75,000 or less.
- It’s for married couples with an AGI of $150,000 or less.
- It phases out if you earn more than those amounts.
- It expires after 2028 (because temporary tax breaks are Congress’s favorite thing).
If you’re married and both spouses are 65+, you can each claim it for a total $12,000 deduction. Not bad.
What You Can Actually Do About This
Honestly? Not a lot. You can’t change the 1984 thresholds. But you can be smart:
- Consider Roth conversions before you claim Social Security (Roth withdrawals don’t count as income).
- Time your withdrawals strategically from traditional 401(k)s or IRAs.
- Claim that new $6,000 senior deduction if you qualify.
- Move to one of the 41 states that don’t tax Social Security.
- Call your CPA to figure out the damage.
The bottom line: VA disability recipients got a fair deal. Social Security recipients with other income? Welcome to 1984.
