Alex is 63 years old and retired. This year Alex won $212,200 in the state lottery. Alex also received $20,000 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 15 years, for $157,500. Alex received $10,000 in Social Security benefits for the year. Calculate Alex's gross income.
What will be an ideal response?
$230,200 = $212,200 + $9,500 + $8,500
The annuity return of capital is ($157,500/15) = $10,500; thus, the taxable portion is $9,500. Given Alex's income, his Social Security benefits are 85 percent taxable (i.e., $10,000 × 85 percent).
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