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Congress continues to pile Stealth Taxes on taxpayers. Retirees and near-retirees are the taxpayers snared most often by the Stealth Taxes.

A Stealth Tax isn’t an across-the-board tax increase. Instead, Congress takes away a tax benefit or imposes a new tax on taxpayers with incomes above certain levels.

Congress has increased the number of Stealth Taxes over the years. I believe Congress will continue to impose new Stealth Taxes and increase current Stealth Taxes. Retirees and pre-retirees will continue to pay the lion’s share of these taxes.

The metric used to impose most Stealth Taxes is modified adjusted gross income.

To arrive at MAGI, you start with Adjusted Gross Income, which is the amount line 11 of Form 1040, and add back some types of tax-free income or other tax benefits.

While Congress uses MAGI frequently in the tax code, the definition of MAGI is not the same for each Stealth Tax. It is important to know the main Stealth Taxes and how MAGI is defined for each of them.

The good news is Congress (or its staffers) realized how complicated the situation is and decided to use the same definition of MAGI for the five new Stealth Taxes created in the One Big Beautiful Bill Act (OBBB) in 2025.

In the OBBB, the maximum itemized expense deduction for state and local taxes was increased to $40,000 from $10,000. But the increase is phased out when MAGI is above $500,000.

The $6,000 Senior Tax Deduction for taxpayers ages 65 and older is phased out when MAGI exceeds $150,000 for a married couple filing jointly or $75,000 for an unmarried taxpayer.

The deduction of up to $25,000 for qualified tip income is phased out when MAGI is over $300,000 on a joint tax return or $150,000 on other returns.

The deduction of qualified overtime pay of up to $12,500 ($25,000 for married couples filing jointly) is phased out when MAGI on a joint return exceeds $300,000 or $150,000 on other returns.

Vehicle loan interest of up to $10,000 is deductible until MAGI exceeds $200,000 on a joint return or $100,000 on other returns.

For all these tax breaks, MAGI is AGI plus any of the following types of tax-free income received during the year: foreign earned income, a foreign housing exclusion allowance and income received from sources in Puerto Rico or American Samoa by a resident of either territory.

The Medicare premium surtax, also known as IRMAA, imposes higher Medicare Part B premiums and Part D prescription drug policy premiums on taxpayers with MAGI above certain levels.

There are several income brackets for IRMAA. The higher the taxpayer’s MAGI, the higher the surtax is. The MAGI amounts and the surtax for each bracket are adjusted for inflation each year.

The computation of MAGI for the Medicare premium surtax is simple. MAGI is AGI plus tax-exempt interest income reported on the tax return.

Social Security benefits originally were tax-free to all recipients. Beginning in the 1980s, taxpayers with higher MAGI are required to include a portion of their benefits (up to 50%) in gross income. Beginning in the 1990s, taxpayers with even higher MAGIs must include up to 80% of benefits in gross income.

The taxation of Social Security benefits probably was the first Stealth Tax and first definition of MAGI.

The calculation of this surtax is so complicated that instead of giving a written description, the IRS suggests a taxpayer complete the worksheet in the instructions to Form 1040 or in IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

MAGI for Social Security benefits is AGI plus tax-free adoption benefits, foreign earned income, the foreign housing exclusion, and income of bona fide residents of Puerto Rico or American Samoa.

Then, certain deductions (but not all deductions) for AGI from Form 1 that accompanies Form 1040 are subtracted. Essentially those deductions (about 14 of them) are added back to AGI to arrive at MAGI.

The net investment income tax is an additional 3.8% levy on the investment income of taxpayers with MAGIs above certain levels. Married joint filers with MAGI above $250,000 and unmarried taxpayers with MAGIs above $200,000 are subject to the tax. The NIIT is in addition to other income and capital gains taxes on investment income.

When computing the NIIT, MAGI is AGI plus tax-free foreign earned income.

When an individual or the individual’s spouse is covered by an employer retirement plan, a deduction for a contribution to a traditional IRA is phased out when MAGI exceeds $123,000 for a married couple filing jointly or $77,000 for an unmarried taxpayer. Those numbers are indexed for inflation each year.

When determining if a traditional IRA contribution can be deducted, MAGI is AGI plus deductions for IRA contributions, student loan interest paid, savings bond interest excluded from gross income, tax-free adoption benefits, foreign earned income, foreign housing exclusion, and any foreign housing deduction.

The amount that can be contributed to a Roth IRA is phased out as MAGI rises. A taxpayer can’t make a contribution to a Roth IRA when MAGI exceeds $240,000 for a married taxpayer filing jointly or $161,000 for an unmarried taxpayer. Those numbers also are indexed for inflation.

MAGI for determining Roth IRA contributions begins with the same computation used for determining whether a contribution to a traditional IRA contribution is deductible. Then, subtract any income recognized for converting a traditional IRA to a Roth IRA or for making a rollover from a retirement plan such as a 401(k) to a Roth IRA.

There are other tax breaks that are reduced or disappear when the taxpayer has MAGI exceeding certain levels. These Stealth Taxes generally don’t affect retirees, so I won’t discuss them in detail.

One such Stealth Tax is the limit on contributions to Coverdell education savings accounts.

There also are a group of tax credits that are reduced as MAGI rises. These credits include the child tax credit, medical insurance premium tax credit, lifetime learning tax credit, and American Opportunity tax credit. The ability to deduct interest on student loans also is reduced as MAGI rises.

You can see that the key to reducing or eliminating Stealth Taxes in retirement is to reduce MAGI, with the focus being on reducing AGI.

Know the MAGI levels that trigger or increase Stealth Taxes and monitor your income during the year. Then, consider the level of your MAGI before deciding how to take additional cash from financial accounts.

You might decide to avoid increasing AGI or MAGI by taking a tax-free distribution from a Roth IRA or health savings account. Or you might decide it is safe to take a taxable distribution from a traditional IRA or other account.