Excess or 50 percent of the social security benefit

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South-Western Federal Taxation 2020: Corporations, Partnerships, Estates and Trusts
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Chapter 18 / Exercise 1
South-Western Federal Taxation 2020: Corporations, Partnerships, Estates and Trusts
Raabe/Young/Nellen/Hoffman
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“excess” or 50 percent of the Social Security benefit received. EXAMPLE 5.3 Assume the same facts as in Example 5.2 , except that Bill and Linda also have $9,000 of interest income from tax-exempt bonds. Computations: Adjusted Gross Income from Example 5.2 $29,000 Plus: Tax-Exempt Interest 9,000 1/2 of Social Security Benefits 5,250 Provisional Income $43,250 Less: Base Amount for Married Couples 32,000 Excess $11,250 50 Percent of Excess $5,625 In this instance, Bill and Linda must include
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South-Western Federal Taxation 2020: Corporations, Partnerships, Estates and Trusts
The document you are viewing contains questions related to this textbook.
Chapter 18 / Exercise 1
South-Western Federal Taxation 2020: Corporations, Partnerships, Estates and Trusts
Raabe/Young/Nellen/Hoffman
Expert Verified
$5,250 in their gross income. This is because 50 percent of their Social Security benefits is the maximum amount that can be included in gross income. Social Security benefits are taxable to the individual who receives the benefits. Therefore, if a child receives Social Security benefits, the benefits are taxable to the child using the same formulas that are discussed above. The Revenue Reconciliation Act of 1993 created a second threshold for years after 1993. This second threshold applies to taxpayers with provisional income greater than $34,000 for a single taxpayer and $44,000 for a married taxpayer filing a joint return. Taxpayers with provisional income exceeding the second threshold will be taxed up to 85 percent of their Social Security benefits. Taxpayers with provisional income exceeding these amounts will include the lesser of: A. 85 percent of the taxpayer’s Social Security benefits, or B. the total of the following calculation: 1. 85 percent of the amount that provisional income exceeds the new threshold amounts, plus 2. the smaller of: (a) the amount of Social Security benefits included under prior law; or (b) $4,500 for an unmarried taxpayer, or $6,000 for married taxpayers filing jointly. Married taxpayers filing separate returns have no base amount and must include in gross income the lesser of: (a) 85 percent of their Social Security benefits; or (b) 85 percent of their provisional income. For illustrations when provisional income exceeds the thresholds, see Examples 5.6 through 5.9 . EXAMPLE 5.4 Linda, a single taxpayer, has AGI of $26,000 and Social Security benefits of $8,000. Linda’s provisional income is $30,000 and she must include in her AGI $2,500 of her Social Security benefits. Inasmuch as her provisional income is below the threshold amount ($34,000), she includes in AGI the lesser of 50 percent of her Social Security benefits or one-half the excess of combined income over the base. EXAMPLE 5.5 Philip and Linda, a married couple filing a joint return, have AGI of $30,000 and Social Security benefits of $14,000. Therefore their provisional income is $37,000. Philip and Linda must include in their AGI $2,500 of their Social Security benefits. Inasmuch as provisional income, $37,000, does not exceed the threshold amount ($44,000), only $2,500 is included in the AGI of Philip and Linda. EXAMPLE 5.6 Pat, a single taxpayer, has modified AGI of $36,000 and she received $10,000 in Social Security benefits. Pat’s provisional income is therefore $41,000. Pat must include in her AGI $8,500 of her Social Security benefits. This is computed as follows: A. $10,000 × 85% = $8,500 B. [($41,000 – $34,000) × 85%] + $4,500 = $10,450 EXAMPLE 5.7 Steve and Marla, a married couple filing a joint return, have modified AGI of $50,000 and Social Security benefits of $14,000. Steve and Marla have

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