Question

Tax Drill - Social Security Benefits

Determine the taxable amount of social security benefits for the following situations. If an amount is zero, enter "$0".

a. Erwin and Eleanor are married and file a joint tax return. They have adjusted gross income of $36,000, no tax-exempt interest, and $12,400 of Social Security benefits. As a result, $_____ of the Social Security benefits are taxable.

b. Assume Erwin and Eleanor have adjusted gross income of $12,000, no tax-exempt interest, and $16,000 of Social Security benefits. As a result, $_______of the Social Security benefits are taxable.

c. Assume Erwin and Eleanor have adjusted gross income of $85,000, no tax-exempt interest, and $15,000 of Social Security benefits. As a result, $____ of the Social Security benefits are taxable.

Answer 1

a. The Erwin and Eleanor must include $5,100 of the Social Security benefit in gross income. This works out as the lesser of the following:

1. 0.50 ($12,400 Social Security benefits) = $6,200
2. 0.50 [$36,000 + 0.50($12,400) - 32,000] = 0.50 ($10,200) = $5,100.

b. The Erwin and Eleanor must include $0 of the benefits in gross income. This works out as the lesser of the following:

1. 0.50 ($16,000 Social Security benefits) = $8,000
2. 0.50 [$12,000 + 0.50($16,000) - $32,000] = 0.50 * -$12,000 = $0 .None of the benefits would be taxable as the result is not a positive number.

c. The Erwin and Eleanor include Social Security benefits will be $12,750. Include lesser of the following:

1. 0.85 ($15,000 Social Security benefits) = $12,750
2. Sum of:

i. 0.85 [$85,000 + 0.50($15,000) - $44,000 second base amount] = 0.85 (48,500) = $41,225

ii. Lesser of:

• 0.50 ($15,000 Social Security benefits) = $7,500
• 0.50 [$85,000 + 0.50($15,000) - $32,000] = 0.50 ($60,500) = $30,250

The sum equals to $41,225 + $7,500 = $48,725

Therefore, 85% of the Social Security benefits $12,750 is included in the couple's gross income.