Ch6TaxationFormulaforSocialSecurityBenefits

Ch6TaxationFormulaforSocialSecurityBenefits - for the...

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TAXATION FORMULA FOR SOCIAL SECURITY BENEFITS In general, up to 85% of social security benefits received are included in income. The amount that is taxable is the lesser of: (1) 85% of social security benefits or (2) The sum of (a) + (b) (a) The smallest of: - 50% (provisional income - $32,000 if MFJ or $25,000 if unmarried) or - 50% of social security benefits or - $6,000 if MFJ or $4,500 if unmarried (b) 85% (provisional income - $44,000 if MFJ or $34,000 if unmarried) * Provisional income = AGI + tax-exempt interest + 50% of social security benefits * For married taxpayers filing separately (MFS), taxable social security benefits equal the lesser of 85% of the benefits received or 85% of provisional income. Example : Mother Tucker, a merry widow, received $16,000 in social security benefits
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Unformatted text preview: for the current year. In addition, she received taxable interest income of $10,000; dividend income of $5,000; short-term capital gains of $4,000; long-term capital gains of $6,000; and tax-exempt interest income of $8,000. How much of her social security benefits must she include in income for the current year? Answer: The amount that is taxable is the lesser of: (1) 85% ($16,000) = $13,600 (2) a + b = $4,500 + $5,950 = $10,450; see below for calculations. Tucker would include $10,450 of her social security benefits in income. Calculations: Provisional income = $10,000 + $5,000 + $4,000 + $6,000 + $8,000 + $8,000 = $41,000 (a) The smallest of 50% ($41,000 - $25,000) = $8,000 or 50% ($16,000) = $8,000 or $4,500 (b) 85% ($41,000 - $34,000) = $5,950...
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