Question

In addition to Social Security benefits of $10,000, Mr. and Mrs. Choy have adjusted gross income of $40,000 and tax-exempt interest of $2,000. They will file a joint return. The taxable portion of their Social Security benefits will be

A) $0.

B) $5,000.

C) $7,550.

D) $10,000.

Answer 1

If an married couple with combined income is less than $32000 you dont need to pay taxes on benefits and if it is more than it they have to pay tax

for that we have to calculate the modified adjusted gross income

it is adjusted gross income + tax exempt interest and 50% of social security benefits

= $40000 + $2000 + (50%of $10000) = $47000

So his taxable portion is lessor of 85% of social security benefits or 85% of modified adjusted gross income minus $44000 plus the smaller of 50% of social security benefits or 50% of modified adjusted gross income minus $32000

So it is calculated as

lessor of

85% of social security benefits =$8500

85% of modified adjusted gross income minus $44000 = 85%of (47000-44000) = $2550

so it is $2550

plus smaller of

50% of social security benefits = $5000

50% of modified adjusted gross income minus $32000 = 50% of (47000-32000) = $7500

it is $5000

so the answer is $5000+$2550 = $7550

So the correct answer is option C

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