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 Eleanor are married and file a joint tax return. They have adjusted gross income of $39,200, no tax-exempt interest, and $13,720 of Social Security benefits.

As a result, $ _________ of the Social Security benefits are taxable.

Answer 1

According to the Internal Revenue Service (IRS) rules, when both of them file a joint return and their combined income is between $32,000 to $44,000 then they have to pay 50% of the benefit as a taxable , And if the combined income os more than $44,000 then they have to pay 85% benefit is treated as a taxable.

Here, they have a gross income of $39,200.

To calculate combined income, the formula is adjusted gross income+ non-taxable interest +1/2 of social security benefit

= $39,200 + $(13,720/2)

=$39,200 + $6,860. = $46,060

Here, the combined income is more than $44,000,  that's why the social security benefit will be $11,662 is considered as taxable.