Question

Grady received $8,800 of Social Security benefits this year. Grady also reported salary and interest income this year.

a. What amount of the benefits must Grady include in his gross income under the following five independent situations? (Leave no answer blank. Enter zero if applicable.)

b. Grady files single and reports salary of $23,650 and interest income of $750.

c.Grady files married joint and reports salary of $78,000 and interest income of $650.

d.Grady files married joint and reports salary of $44,000 and interest income of $850.

e.Grady files married separate and reports salary of $23,650 and interest income of $750.

a. Grady files single and reports salary of $13,600 and interest income of $400.

Answer 1

For Social Security benefits to be taxable, the individual combined income must be greater than $25,000.

Combined Income = Adjusted Gross Income + Non-taxable Interest +1/2 of Social Security.

Amount of Social security Taxable:

If you're single,

Combined Income    Amount of Social security taxable

(i) less than $25,000    Nil

(ii) between $25,000 and $34,000 50%

(iii) greater than $34,000 85%  

If married & file joint return

Combined Income    Amount of Social security taxable

(i) less than $32,000 Nil

(ii) $32,000 and $44,000 50%

(iii) greater than $44,000 85%  

If married and file separately : up to 85% of your benefits can be taxed, regardless of your income.

a) Grady files single and reports salary of $13,600 and interest income of $400.

Combined Income = Adjusted Gross Income + Non-taxable Interest +1/2 of Social Security.

= $13,600 + $400 +1/2 * 8,800 = $18,400

Since, combined income is less than $25,000 and files single return so, amount of social security benefits is not taxable.

b) Grady files single and reports salary of $23,650 and interest income of $750.

Combined Income = Adjusted Gross Income + Non-taxable Interest +1/2 of Social Security.

= $23,650 + $750 +1/2 * 8,800 = $28,800

Since, combined income is in between $25,000 and $34,000 and files single return so, amount of social security benefits taxable = 50% of social security = 50%*$8,800 = $4,400.

c) Grady files married joint and reports salary of $78,000 and interest income of $650.

Combined Income = Adjusted Gross Income + Non-taxable Interest +1/2 of Social Security.

= $78,000 + $650 +1/2 * 8,800 = $83,050

Since, combined income is greater than $44,000​​​​​​​ and files married and joint return so, amount of social security benefits taxable = 85% of social security = 85%*$83,050 = $70,592.5

d) Grady files married joint and reports salary of $44,000 and interest income of $850.

Combined Income = Adjusted Gross Income + Non-taxable Interest +1/2 of Social Security.

= $44,000 + $850 +1/2 * 8,800 = $49,250

Since, combined income is greater than $44,000​​​​​​​ and files married and joint return so, amount of social security benefits taxable = 85% of social security = 85%*$49,250 = $41,862.5

e) Grady files married separate and reports salary of $23,650 and interest income of $750.

Combined Income = Adjusted Gross Income + Non-taxable Interest +1/2 of Social Security.

= $23,650 + $750 +1/2 * 8,800 = $28,800

Since, Grady is married and file separately : up to 85% * 28,800 can be taxed = 85%*28,800 = $24,480