Question

Exercise 4-26 (Algorithmic) (LO.4) Determine the taxable amount of social security benefits for the following situations. If required, round your answers to the nearest dollar If an amount is zero, enter "0". a. Erwin and Heanor are married and file a joint tax return. They have adjusted gross income of $42,600, no tax-exempt interest, and $14,910 of Social Security benefits. As a result, $ x of the Social Security benefits are taxable. b. Assume Erwin and Eleanor have adjusted gross income of $15,800, no tax-exempt interest, and $17,380 of Social Security benefits. As a result, $ 0 of the Social Security benefits are taxable. C. Assume Erwin and Eleanor have adjusted gross income of $88,000, no tax-exempt Interest, and $13,200 of Social Security benefits. As a result, s o X of the Social Security benefits are taxable.

Answer 1

Answer-

a. The Erwin and Eleanor must include $7,455 of the Social Security benefit in gross income. This works out as the lesser of the following:

1. 0.50 ($14,910 Social Security benefits) = $7,455
2. 0.50 [$42,600 + 0.50($14,910) - 32,000] = 0.50 ($18,055) = $9,028

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 ($17,380 Social Security benefits) = $8,690
2. 0.50 [$15,800 + 0.50($17,380) - $32,000] = 0.50 * -$7,510 = $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 $11,220. Include lesser of the following:

1. 0.85 ($13,200 Social Security benefits) = $11,220
2. Sum of:

i. 0.85 [$88,000 + 0.50($13,200) - $44,000 second base amount] = 0.85 (50,600) = $43,010

ii. Lesser of:

• 0.50 ($13,200 Social Security benefits) = $6,600
• 0.50 [$88,000 + 0.50($13,200) - $32,000] = 0.50 ($62,600) = $31,300

The sum equals to $43,010 + $6,600 = $49,610

Therefore, 85% of the Social Security benefits $11,220 is included in the couple's gross income.