Grady received $8,200 of Social Security benefits this year. Grady also reported salary and interest income this year. What amount of the benefits must Grady include in his gross income under the following five independent situations? a. Grady files single and reports salary of $12,100 and interest income of $250.
b. Grady files single and reports salary of $22,000 and interest income of $600.
c. Grady files married joint and reports salary of $75,000 and interest income of $500.
d. Grady files married joint and reports salary of $44,000 and interest income of $700.
e. Grady files married separate and reports salary of $22,000 and interest income of $600.

Answer is explained in the explanation section below.

Explanation:

Part a. The amount of benefit that Grady include in his gross income = $0

Since, The sum of modified AGI plus 50% Social Security benefits he received (i.e. $12,100 + 250 + $8,200*50% = $16,450) is below the minimum amount ($25,000 or less for single taxpayers) for including Social Security benefits.

Part b. The amount of benefit that Grady include in his gross income = $850

Since, in this case Grady files single and his modified AGI plus 50% of his Social Security benefits (i.e. $22,000 + 600 + $4,100 = $26,700) falls between $25,000 and $34,000.

Thus, his taxable Social Security benefits = (a) $8,200*50%= $4,100 or 50%of [$26,700 - $25,000] Whichever is less

= (a) $4,100 or $850 whichever is less = $850

Part c. The amount of benefit that Grady include in his gross income = $6,970

Since, in this case he files married & jointly, he will include 85% of total Social Security benefits = $8,200*85% = $6,970 because his modified AGI is above the maximum amount of $44,000 for married filing jointly for including Social Security benefits.

Part d. The amount of benefit that Grady include in his gross income = $6,970

Since, here Grady files married jointly and his modified AGI + 50% of Social Security benefits (i.e. $44,000 + 700 + $4,100 = $48,800) are greater than $44,000.

Thus, taxable social security benefits = (a) 85% of 8,200 = $6,970 or (b) 85% of (48,800 - 44,000) = $4,080 + lesser of 6,000 or 4,100 whichever is less

= (a) $6,970 or (b) $4,080 + 4,100 = $8,180 whichever is less

= $6,970

Part e. The amount of benefit that Grady include in his gross income = $6,970

Since, here Grady files married & separately:

Thus, taxable social security benefits = (a) 85% of $8,200 = $6,970 or (b) 85% of ( $22,000 + 600 + $4,100 = $22,695 ,whichever is less

= $6,970

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