income (or adjusted gross income, if greater) over 

 $9,000. This credit is not available on an advance 

 payment basis. 



Tax on Social Security Benefits 



Prior to the new law, if the sum of modified 

 taxable income plus one-half of Social Security ben- 

 efits (the sum of the two is called provisional income) 

 exceeded $25,000 for an unmarried taxpayer or 

 $32,000 for a married couple filing a joint return, up 

 to 50% of Social Security benefits were subject to 

 income tax. 



Under the new law, taxpayers will be subject to 

 tax on up to 85% of their Social Security benefits, 

 effective for tax years beginning after 1993. The 

 existing rule (as explained in the above paragraph) 

 will continue to apply to taxpayers whose provi- 

 sional income is less that $34,000 for unmarried 

 taxpayers and $44,000 for married couples filing a 

 joint return. If provisional income exceeds these 

 levels, gross income will include the lesser of: 



(a) 85% of the taxpayer's Social Security benefit, or 



(b) The sum of: 



(1) The smaller of : 



(i) the amount included under pre-'93 law, 



or 

 (ii) $3,500 for unmarried taxpayers or 



$4,000 for a married couple filing a join 



return plus 

 (2) 85% of provisional income over the new 

 $34,000 1 $44,000 threshold. 



For married taxpayers filing separate returns, gross 

 income will include the lesser of: 



(a) 85% of the taxpayer's Social Security benefit, or 



(b) 85% of the taxpayer's provisional income. 



For purposes of the above calculation, a taxpayer's 

 provisional income (modified adjusted gross income 

 plus one-half of the taxpayer's Social Security ben- 

 efit) is calculated in the same manner as under pre- 

 93 law. 



Without implicating them in any way, I thank 

 Robert Christensen, Department of Resource 

 Economics and Michael Whiteman, Department 

 of Accounting and Information Systems, School 

 of Management, both from the University of 

 Massachusetts, for their helpful comments. 



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Fruh Notes, Winter, 1994 



19 



