In addition to Social Security benefits of $8,000,Mr.and Mrs.Wells have adjusted gross income of $32,000 and tax-exempt interest of $1,000.They will file a joint return.The taxable portion of their social security benefits will be
A)$0.
B)$2,500.
C)$4,000.
D)$8,000.

Question

Quizplus · Accepted Answer

To determine the taxable portion of the Social Security benefits, calculate the provisional income which is the adjusted gross income plus tax-exempt interest plus half of the Social Security benefits. In this case, the provisional income is $32,000 + $1,000 + ($8,000/2) = $36,000.

Then, using the IRS formula to determine the taxable portion of Social Security benefits, the maximum amount of Social Security income subject to taxation is $25,000 for married filing jointly.

Since the provisional income of $36,000 is over the maximum amount, we must take half of the excess which is ($36,000 - $25,000)/2 = $5,500.

Therefore, the taxable portion of Social Security benefits is $5,500, and the Wells will have to pay tax on that amount.

In Addition to Social Security Benefits of $8,000,Mr