With regard to the inclusion of social security benefits in gross income, for the Year 8 tax year, which of the following statements is correct?
a. The social security benefits in excess of the modified adjusted gross income over a threshold amount are included in gross income.
b. The social security benefits in excess of modified adjusted gross income are included in gross income.
c. Eighty-five percent of the social security benefits is the maximum amount of benefits to be included in gross income.
d. The social security benefits in excess of one half the modified adjusted gross income are included in gross income.
Answer:C
Choice "c" is correct. The amount of social security benefits that is taxed is dependent on whether the combined income (AGI plus interest on tax-exempt bonds and 50% of the social security benefits) is greater than a threshold amount. If the combined income is less than the threshold, the amount taxed is the lesser of 1) 50% of the benefits or 2) 50% of the excess of the combined income over the threshold. If the combined income is greater than the threshold, the amount taxed is the lesser of 1) amount calculated above plus 85% of the excess of the combined income over the threshold or 2) 85% of the benefits. Thus, 85% of the benefits is the maximum amount of benefits that may be included in gross income.