Question Palooza (February 2020): Retirement Planning - Tax Treatment of Social Security Benefits

Posted by Mike Long, CFP®, ChFC®, CLU®

Feb 12, 2020

This question is discussed in the Practice Question Palooza question episode of the BIF Bites podcast.

Renee, a single taxpayer, retired at age 62 and is receiving Social Security retirement benefits and she continues to work part-time. She also receives municipal bond interest and qualified dividends to supplement her income. Which of the following statements is not correct regarding the calculation of Renee’s provisional income to determine how much, if any, of her Social Security benefits will be subject to income tax?

  1. Part-time earned income is included in provisional income.
  2. 100% of her Social Security benefit is included in provisional income.
  3. Municipal bond interest is included in provisional income.
  4. Qualified dividends are included in provisional income.

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Correct answer: B. 100% of her Social Security benefit is included in provisional income.

Instructor insight:

50% (not 100%) of the Social Security benefit is included in provisional income. A worker’s MAGI plus 50% of the Social Security retirement benefit is the provisional income. For this calculation, MAGI consists of the worker’s AGI, plus any tax-exempt interest, interest on bonds used to finance higher education, amounts excluded under an employer’s adoption assistance program, and any foreign earned income exclusion.

 

Topics: Practice Questions

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Last updated: December 28, 2023

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Interpretation

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Definitions

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Types of Data Collected

Personal Data

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Refund Policy

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We are confident that you will be satisfied with your learning experience. However, if you need to cancel your online course enrollment for any reason, we grant refunds within the first 15 days of purchase. The 15 day refund period begins on the date of your initial purchase.

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