Social Security

Question 1

Bishakha is age 66 and separated from her husband in the middle of the year. They are not “legally” separated and they have not filed for divorce. Bishakha doesn’t have any dependents, and plans to file MFS (married filing separately). She is still working, and also collects Social Security. What is the base amount that Bishakha must use to calculate the taxable portion of her Social Security?

A. $0
B. $50,000
C. $25,000
D. $32,000

Answer 1

A:

Bishakha is filing MFS, and separated from her spouse in the middle of the year, which means her base amount is zero.

Note: For a taxpayer who is married filing separately and lived with their spouse at any time during the year, the base amount for calculating the taxability of Social Security benefits is$0, meaning that Bishakha’s Social Security benefits are likely to be at least partially taxable.

Question 2

Which of the following is not taxable as “earned income”?
A. Social security and railroad retirement benefits
B. Self-employment income of a statutory employee.
C. Union strike benefits.
D. Long-term disability benefits received prior to minimum retirement age.

Answer 2

A:
Social security and railroad retirement benefits are not considered “earned income”. Earned income includes all the taxable income and wages a taxpayer receives from working. Taxable earned income includes:
Wages, salaries, tips, and other taxable employee pay.
Union strike benefits.
Long-term disability benefits received prior to minimum retirement age.
Net earnings from self-employment.
Most government welfare benefits including food stamps, heating assistance programs, and non-federal assistance benefits from states or local agencies are exempt from federal taxation and not treated as “earned income.” Worker’s compensation, which provides wage replacement and medical benefits to injured workers, is also not taxable.