Here is the explanation:
A portion of a taxpayer's Social Security benefits may be taxable.
For single taxpayers with provisional income above $34,000, gross income includes the lesser of:
85% of Social Security benefits received or
85% of excess of provisional income (defined as modified AGI + 1/2 Social Security benefit) over $34,000, plus the smaller of:
the amount includible under the old law (1/2 of Social Security) or
$4,500.
1. 0.85 x $8,400 = $7,140
2. $60,000 AGI
+ 1,000 Interest on tax-exempt obligations
$61,000 Modified AGI
+ 4,200 1/2 of Social Security
$65,200 Provisional income
– 34,000 Threshold amount
$31,200 x .85 = $26,520
+ 4,200 Lesser of $4,200 or $4,500
$30,720
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LESSER OF (1) OR (2) = $7,140 (This is the INCLUDIBLE amount)
$8,400 total Social Security benefits
– 7,140 includible amount
$1,260 is EXCLUDABLE from taxable income
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