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I assume the couple are filing their tax returns jointly. According to IRS regulations tor taxes to be paid on the income earned in 2010, social security benefits are taxable if the total of half the social security benefits, all the income earned during the year including tax exempt interest and other exclusions exceeds a base amount which is dependent on the marital status of the person and how the tax return is being filed.
For married couples filing their returns together the base figure is $32,000.
In the problem, the couple has received $10,000 of social security benefits. Half of this has to be added to the income and the total compared to the base amount. The amount that exceeds the base figure is taxable.
Let's consider the different provisional income figures:
A. $5000 + $25000 = $30000 which is less than $32000. The social security benefits are not taxable in this case.
B) The total amount $46,000 is greater than $44,000. This makes 85% of the social security benefits taxable. $8,500 of the social security benefits would be taxable.
C)The total amount $68,000 is greater than $44,000. This makes 85% of the social security benefits taxable. $8,500 of the social security benefits would be taxable.
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