Intuit Academy Tax Practice Exam

What portion of Social Security Payments is included in the taxpayer's adjusted gross income?

1. All of it

2. None of it

3. Only half of it

4. It depends on other income

The correct answer is: It depends on other income

The answer indicates that the inclusion of Social Security payments in a taxpayer's adjusted gross income (AGI) is contingent upon other income sources. Specifically, the amount of Social Security benefits that can be included in AGI varies based on the taxpayer's combined income, which consists of the taxpayer's adjusted gross income plus nontaxable interest and half of the Social Security benefits received. For individuals with lower total incomes, they may find that none of their Social Security benefits are taxable. As income increases, a portion of the benefits may become taxable. For instance, if a single filer’s combined income exceeds a certain threshold (e.g., $25,000), then up to 50% of Social Security benefits can be included in AGI. If their income exceeds higher thresholds (e.g., $34,000), up to 85% of the benefits may be included. This flexible approach allows for an equitable tax treatment of Social Security benefits, acknowledging that those with lower incomes should not be as heavily taxed on their benefits as those with higher incomes.