In addition to Social Security benefits of $8,000,Mr.and Mrs.Wells have adjusted gross income of $32,000 and tax-exempt interest of $1,000 and will file a joint return.The taxable portion of their social security benefits will be

Question

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To determine the taxable portion of Social Security benefits, we need to use the formula below:

(Total income + tax-exempt interest + 50% of Social Security benefits) - Base amount = Taxable Social Security benefits

The base amount for married couples filing jointly in 2021 is $32,000.

Plugging in the numbers, we get:

($32,000 + $1,000 + $4,000) - $32,000 = $5,000 - $32,000 = -$27,000

Since the result is negative, the taxable portion of their Social Security benefits is $0.

However, there is a special rule for Social Security that states that the maximum taxable amount is 85% of the Social Security benefits received. So, even though the result above is negative, we cannot reduce the taxable portion below $0. Therefore, the taxable portion will be limited to 85% of $8,000, which is $6,800.

The taxable portion of Social Security benefits for Mr. and Mrs. Wells is:

Minimum of $0 or $6,800 - ($32,000 + $1,000) = $2,500

Therefore, the correct answer is B) $2,500.

In Addition to Social Security Benefits of $8,000,Mr