Question

Shelby, single, receives $12,000 in Social Security benefits in the current year. She also receives $10,000 in taxable pension payments and $6,000 in municipal bond interest income. How much of her Social Security benefits are included in gross income?

A. $0.

B. $10,500

C. $17,850

D. $21,000

E. $21,000

Answer 1

The taxability of social security interest and inclusion of it in gross income will depend on whether the combined income is more than the tax base.

Now combined income means in case of individual having social security benefit is all the other incomes included not taxable income plus half of social security benefit. In this case it will be taxable pension income + exempt interest from municipal bond + half of social security benefit.

Combined income = 10000+6000 + 50% of 12000

Combined income =$22000.

Now the tax base on which the social security is not taxable for a single filer is = $25000.

In this case since the combined income is lower than the tax base hence no amount of social security benefits to be included in gross income.

Thus the correct option is -----A. i.e $ 0.