Do state tax refunds, municipal bond interest, or foreign pension payments count toward provisional income after the 2025 change?

1. Municipal bond interest: counted in provisional income despite being tax‑exempt

Federal and financial‑industry guidance make the same practical point: interest from municipal bonds is generally exempt from federal income tax but is still added into the provisional‑income calculation that determines how much of Social Security benefits are taxable (the IRS and tax education sources instruct taxpayers to add tax‑exempt interest when computing provisional income, and investment firms similarly explain municipal interest counts toward the provisional‑income total) ^{[1] [2] [3]}. Consumer guidance and adviser commentary repeatedly highlight the “gotcha” that tax‑free muni income can push a retiree over the Social Security thresholds even while the interest itself isn’t directly taxed at the federal level (investor guides and commentary explicitly state tax‑exempt municipal bond interest is to be added in the provisional‑income formula) ^{[4] [2] [5]}.

2. What the IRS instructions show and imply about municipal income reporting

The IRS Schedule B instructions and related IRS topic pages underline that payers report tax‑exempt interest and that specific categories of interest — including tax‑exempt OID and amortizable premium rules — affect how interest is reported, reinforcing that municipal interest must be tracked for other calculations even if it’s exempt from regular federal tax (Schedule B instructions note tax‑exempt interest reporting and related adjustments) ^{[1] [6]}. That administrative focus on reporting supports the practical reality cited by tax advisers: tax‑exempt munis enter provisional‑income math because provisional income explicitly includes “tax‑free interest” as a component ^{[1] [2]}.

3. State tax refunds: treatment for provisional income not established in provided sources

State tax refunds appear in federal tax rules as potentially taxable income in specific circumstances (for example, when the taxpayer received a federal itemized deduction for state taxes in the prior year), but the documents supplied do not show an explicit 2025 change tying state tax refunds to the provisional‑income calculation for Social Security (the New York instructions discuss state‑level pension and interest treatment but do not speak to a nationwide 2025 change to provisional income and state refunds) ^{[7] [8]}. Because no provided source directly addresses a 2025 modification to provisional‑income inclusion for state refunds, this analysis cannot confirm such a change and must leave the question open to authoritative IRS Social Security or legislative texts not included here (no source coverage).

4. Foreign pension payments: evidence gap on 2025 change and provisional‑income inclusion

State tax forms cited in the reporting discuss pension distributions from U.S., state, and municipal systems and how they feed into state returns, but the available material does not document whether foreign pension payments were reclassified in 2025 for provisional‑income purposes or how foreign‑source pensions interact with the Social Security provisional‑income formula after any 2025 change (New York instructions address U.S. and local pensions but not foreign pensions with respect to provisional income) ^{[7] [8]}. Without a direct IRS or SSA notice in the provided set, it is not possible to authoritatively say that foreign pension payments now do or do not count toward provisional income as of 2025; supplementary official guidance would be required (no source coverage).

5. Bottom line and what to watch for

The clearest, source‑backed answer is that municipal (tax‑exempt) bond interest is included in the provisional‑income calculation that determines taxable portions of Social Security benefits, even after 2025 guidance reiterated standard reporting and tax rules ^{[2] [1] [3]}. For state tax refunds and foreign pension payments, the provided documents do not contain an explicit 2025 rule changing their treatment for provisional income, so any definitive statement about a 2025 change cannot be supported from these sources; taxpayers should consult the IRS, SSA bulletins, or a qualified tax adviser for a confirmed ruling on those two items (no source coverage).