Question

In 2019, Taxpayer (“T”) is a single, 65 year-old individual who is a U.S. citizen. T turned 65 in 2019. T receives $18,000 of social security income in 2019 (the first year T received Social Security Benefits). Also, T received $6,000 of interest income from a municipal bond in both 2018 and 2019. On June 1, 2018, T took a job with a multi-national corporation which paid T $5,000 per month. As a condition of the job, T is required to work overseas, in the country of Austria, and T did in fact work in Austria for 214 days (From June 1 – December 31) in 2018. T is offered to continue to work (still in Austria and still for $5,000 per month) for seven additional months (from January 1 until the end of July, which is 211 days) in 2019, at which point T’s position would terminate. T is trying to decide whether T wants to continue to work for seven months in 2019 or quit on January 1. (These are T’s only transactions during 2018 and 2019). a. What is T’s Gross Income in 2019 if T continues to work through July of 2019? __________________________________ b. What is T’s Gross Income in 2019 if T does NOT continue to work in 2019? __________________________________ c. Excluding the effects of the payroll tax and any credits, What is the economic benefit to T of continuing to work for 7 months in 2019 (meaning how much total extra money, after tax, will T have as a result of continuing to work in 2019)? _____________________

Answer 1

If a taxpayer’s income exceeds a specified base amount, i.e., $25,000 for single and $34,000 for married couple , as much as 85% of social security retirement benefits must be included in gross income. The taxable amount of benefits is determined through the application of one or two formula that utilize a special measure of income - Modified Adjusted Gross Income (MAGI).

Accordingly,

A)Gross total income of T in 2019 - If T Continue to work for 7 months is $41,000 which is exceeding the threshold limt so 85% of social security benefits are taxable. Therefore

Particulars	Amount
Social Security Benfits - 85%	$15,300
Interesr Income	$6,000
Salary ($5,000*7)	$35,000
Gross Total Income	$56,300

B)Gross total income of T in 2019 - If T Continue to work for 7 months is $24,000 which is not exceeding the threshold limt. So social security benefits are not taxable. Therefore

Particulars	Amount
Interst Income	$6,000
TGross total income	$6,000

C) Extra Money after Tax as a result of continuting work in 2019

Gross total income = $ 56,300

Less: Deduction = $13,850

Taxable income = $42,450

Since tax rates are not provided the extra money after tax cannot be calculated