Intuit Academy Tax Practice Exam 2025 - Free Tax Practice Questions and Study Guide

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How are Social Security benefits taxed?

They are always taxed at a flat rate.

They are subject to tax based on the taxpayer's combined income.

Social Security benefits are taxed based on the taxpayer's combined income, which includes adjusted gross income (AGI), tax-exempt interest, and half of the Social Security benefits received. This approach creates a threshold that determines how much of the benefit is subject to federal income tax. For individuals with a combined income above certain levels, up to 85% of their Social Security benefits may be taxable. The calculation of combined income recognizes that benefits are designed to provide assistance, but also acknowledges that for some taxpayers, especially those with additional sources of income, the benefits can represent a significant portion of their overall income. This graduated approach ensures that those with higher overall income levels are responsible for contributing to tax revenue through their benefits, while also providing relief for those with lower incomes.

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They are completely exempt from federal income tax.

They are only taxed if the taxpayer is under 60 years old.

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