Homework Answers
Answer-
(a) Taxable social security benefits =0.5($35000+0.5($12000)-$32000) =0.5(9000)=$4500
Pension benefits etc $35,000
Total AGI = $39,500
(b) Other income ($3500 - $8000) = $27000
Taxable SSB0.5(27000+$6000+0.5*12000-$32000)=$3500
AGI = $30,500
Less: AGI in (a) ($39,500)
Decrease ($9000)
Tax payers economic income decreased by $2000($8000-$6000) but taxable AGI decreases by $9000. With 15% MTR after tax economic income decreased by $650($2000-$9000*15%)
(c) least of following
1. 0.85($65000+0.5*12000-$44000) = $22950
Add smaller of
Amount computed using first formula which is
Least of 0.5*12000 = $6000
0.5($65000+0.5*12000-$32000)= $19500 or $6000
$22950 +$6000 = $28950
2.0.85*12000 = $10200
Hence Linda and Don required to include 85% of SSB $10200 in their gross income
Social security benefits $ 10200
Other income =$35000+$30000(addl.inc)=$65000
AGI $75200
Less :AGI as per (a) ($39500)
Increase $35,700
Increase in AGI exceeds increase in earnings due to more SSB comes to Tax.
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