1. Bill is single, retired, and received Social Security retirement benefits of $28,000 this year. His other income consists of his monthly $5,000 pension payment from his prior employer; $5,000 in tax-exempt municipal bond interest; and $1,000 in dividends. How much of Bill's Social Security Benefit will be subject to income tax?
a. $0.
b. $14,000.
c. $23,800.
d. $28,000.
2. Colin and Coleen are married and both turned 70½ this August. They have $2,000 of muni-bond interest, $34,000 of Social Security benefits, and $3000 of preferred stock dividends. Last year, none of their Social Security benefits were taxable. However, this year, $5,000 of their benefits were taxable. Why would the taxation change from last year to this year?
a. Based on their income, the benefits should not be taxable.
b. The annual limits on Social Security taxation change each year, which likely resulted in the benefits being subject to taxation.
c. If they had to take a minimum distribution of $20,000, then that would explain the taxation of the Social Security benefits.
d. They must have filed separate returns.