MEMO #:3
GROUP #:4 / Writer: Micah Bang / Reviewers: Yizhou Chen & Drew Rasmussen
FACTS: Jackie Johnson (age 79) receives Social Security benefits from the Federal government. Due to her husband’s recent death, she inherited many municipal bonds he had purchased, and subsequently receives a large amount of interest income each quarter.
ISSUE: Whether or not Jackie’s Social Security benefits must be reported as taxable income to the IRS, if so, to what extent, and how the municipal bond interest income affects the tax treatment of the Social Security benefits.
AUTHORITIES: Standard Federal Tax Reporter (2015), Section 86. SOCIAL SECURITY AND TIER 1 RAILROAD RETIREMENT BENEFITS
CONCLUSION: Jackie’s Social Security benefits must be reported as taxable income to the IRS, and the treatment heavily depends on her filing status. If Jackie files a joint return to
…show more content…
Assuming Jackie’s husband passed away within the calendar year, Jackie can elect to file a single/surviving spouse or joint return. According to Section 86 of the Standard Federal Tax Reporter, if Jackie elects to file an individual return, her base amount and adjusted base amount are $25,000 and $34,000, respectively. If she instead elects to file a joint return, her base amount and adjusted base amount are $32,000 and $44,000, respectively.
If Jackie’s provisional income exceeds her base amount, then the lower of half of the excess above the base amount or half of her benefits are included in taxable income. Provisional income is equal to Jackie’s Modified Adjusted Gross Income (Adjusted Gross Income plus any tax-exempt interest income) plus half of her Social Security benefits. If her provisional income is greater than the former figures in the above paragraph, then the lesser of: half of her benefits, or, half of the excess above the base amount are included in her taxable
On August 14, 1935 in Austin, Texas, President Franklin D. Roosevelt inked his signature on the Social Security Act. It was originally implemented to resolve problems with unemployment, old age insurance, and public health and welfare. The Great Depression was the catalyst for the creation of the Social Security program, and the basic structure was very similar to Germany’s social insurance programs from the 1880s. Today, social security is mostly used for retired senior citizens starting at the age of 62. At 62, American citizens can begin to collect, but will only receive 35% of their monthly benefit due, rather than the maximum amount of 50% when they reach the full retirement age of 66. (cite) In addition, social security is dispersed to about 14 million disabled people under the age of 62, who can no longer work in the labor force for various reasons. The people who qualify as disabled are just a small percentage of those collecting compared to senior citizens, and are often not mentioned when social security issues are brought up because of their minute effects on social security distribution.
Hoffman, W., Maloney, D., Raabe, W., & Young, J. (2013). Federal Taxation Comprehensive Volume. (36 ed.). Ohio: South-W
Regulation §1.704-1(b)(2) states that in determining whether a special allocation has a principal purpose of avoidance or evasion of Federal income tax, a facts and circumstances test must be considered. Such a test involves asking a series of questions
If you are single and you are earning more than $25,000 per year including SSDI benefits, a portion of your benefits will be taxable. If you are married and you and your spouse filed jointly, SSA will take into account your combined income. If you and your spouse are making
Ken reported the following financial information this year. Assume Ken’s modified adjusted gross income for purposes of the bond interest exclusion and for determining the taxability of his Social Security benefits is $70,000 and that Ken files as a single taxpayer. Determine Ken’s 2009 gross income.
Ken is 63 years old and unmarried. He retired at age 55 when he sold his business, understock.com. Though Ken is retired, he is still very active. Ken reported the following financial information this year. Assume Ken’s modified adjusted gross income for purposes of the bond interest exclusion and for determining the taxability of his Social Security benefits is $70,000 and that Ken files as a single taxpayer. Determine Ken’s 2009 gross income.
The most advantageous filing status for spouse A and spouse B to use is married filing jointly.
3) Residents are taxed at a different tax rate to non-residents. Discuss the main difference between residents and non-residents and tests that are being applied to distinguish between those two categories.
Issue e) What tax benefits would John realize if he invested $15,000 in Jane 's jewelry making?
Discuss filing requirement? - Filing requirements are specified by law for each type of taxpayer. In addition, all corporation must file a tax return annually regardless of their taxable income. Therefore, estates and trusts are required to file annual income tax returns if their gross income exceeds $600. In the filing requirements for individual taxpayers are a little more complex as they depend on the taxpayer’s filing status, age and gross income. The gross income thresholds are calculated as the sum of the standard deduction, additional deduction for taxpayers age 65 or older and personal exemptions that should be applied to each respective filing status. In addition, the amounts are indexed each year for inflation. Thus, when a taxpayer is due a refund which happened to occur only when
First and foremost, despite slight recent increases in the amount of income obtained by members of the older population, their economic status is still quite perilous (Federal Interagency Forum, 2012).1 Men in this category have a median income of $27,707, while women continue to lag behind with a median income of $15,362 (AOA & AOCL, 2012). A vast majority of these individuals cite Social Security as their primary source for this income, amounting to 86-percent of the total older population (AOA & AOCL,
How Social Security functioned was a part of the workers check would be deducted and given to the elderly as "Social Security" at that present time. Then in turn when that person came of age to retire (generally 65) America's working force at the time would support them with a monthly check. Sometimes that check would coincide with how much they made when they were working but not always.
Social Security system provides benefits to retired citizens by taxing the work force on payroll checks. The American Association of Retired People announces, “Maximum Taxable Earnings, in 2012, workers paid Social Security taxes on income up to $110,100. In 2013, the figure will rise to $113,700, based on an increase in average wages.” The AARP shares the maximum taxable earnings from workers has rose since last year. By raising the taxable amount, workers will then be taxed on a higher income. Time states, “People retiring today will be among the first generation of workers to pay more in Social Security taxes than they receive in benefits over the course of their lives, according to a new analysis by the Associated Press.” The analysis shares that many of the newer generation that will retire in the future will be paying more in
A. Social Security is a Federal program where they take a percentage from all of the wages earned by workers in this country.
A Social Security tax is paid on the first $106,800 of income that is earned but anything thereafter is not exposed to this tax. Taxes that are paid in for Social Security are most commonly known as going towards old-age benefits that are received when retirement age is met. It also goes towards survivors, such as the spouse or young children of someone who has passed, and disability insurance. The taxes paid in for Medicare go towards the medical insurance of those who are over the age of 65 or those who meet other decisive factor. The Medicare portion of the self-employment taxes is not subject to any restriction on earnings and as a result all earning will be accountable for this tax. (Internal Revenue Service, 2011)