Module 7 Quiz

Janice is the self-employed owner of an unincorporated business. She has hired the following family members to work in her business. Which family member(s) is(are) covered by Social Security? Her husband Her daughter, age 16 Her son, age 19 A) I and III B) I, II, and III C) II and III D) I only

A) A child under the age of 18 who is employed in the parent's unincorporated business is not covered by Social Security. LO 7.1.1

Which of the following statements best describes the definition of disability in qualifying for disability benefits under Social Security? A) An individual must not be able to engage in any substantial, gainful activity, and the impairment must be expected to last at least 12 months or result in death. B) An individual must not be able to engage in the work of any occupation for which she is trained. C) An individual must not be able to engage in the work associated with his last employment position. D) An individual must be able to engage in work as specified by a Social Security Administration examiner.

A) Disability, for the purpose of Social Security, means an individual is so severely physically or mentally disabled that the person cannot engage in any substantial, gainful activity, which must be expected to last at least 12 months or result in death. LO 7.2.1

What is the maximum percentage of Social Security benefits that may be subject to income taxation? A) 85% B) 35% C) 0% D) 50%

A) If someone has provisional income in excess of $32,000 for unmarried taxpayers and $44,000 for married taxpayers, up to 85% of Social Security benefits may be subject to income taxation. These numbers are not indexed. Also, the threshold is $0 for people who file their return as married filing separately (MFS) if they are not living apart. LO 7.2.2

Maryellen, age 63, is receiving Social Security retirement benefits. She also works part time, and her earnings are $10,000 more than the earnings limit. Her Social Security retirement benefits this year will be reduced by A) $5,000. B) $0. C) $7,500. D) $10,000.

A) Maryellen has not reached full retirement age, so she is subject to the retirement earnings test. Her Social Security benefits will be reduced by $1 for every $2 in earnings over the applicable limit. LO 7.2.1

Higher-income earners will have a Social Security retirement income replacement ratio that is A) lower than low-income earners. B) There is no relationship between the Social Security income replacement ratios of high and low earners. C) the same as low-income earners. D) higher than low-income earners.

A) Replacement rates, or the amount of one's paycheck that is replaced by Social Security retirement benefits, favor lower-income earners by replacing about 90% of their (very low) earnings. Higher earners will see only a 26% replacement. LO 7.2.1

George was born in 1962. His full retirement age (FRA) for Social Security purposes is A) 67. B) 70. C) 65. D) 62.

A) The FRA for individuals born in 1960 and later is 67. LO 7.2.1

Assume that a worker's Social Security full retirement age (FRA) is 67, and the worker retires and starts drawing Social Security early at age 64. What are the consequences? A) The worker receives the full benefit at age 64 but receives a reduced benefit starting at age 70. B) The worker receives a reduced benefit for the rest of his life. C) The worker's retirement benefit will not receive cost-of-living increases until the year the person reaches FRA. D) The worker receives a reduced benefit starting at age 64 but will receive the full benefit starting at age 67.

B) A worker who starts Social Security retirement benefits early (as early as age 62 is allowed) will receive a reduced benefit, which will continue for life. This reduced benefit will be adjusted for inflation each year. LO 7.2.1

A covered individual or his survivor is entitled to which of the following benefits under Social Security if the worker is only in a currently insured status? A) Surviving spouse not caring for dependent child benefit B) Surviving child's (dependent) benefit C) The worker's own retirement benefits D) Spousal retirement benefits

B) An individual who is only currently insured under Social Security (6 credits of coverage in preceding 13-quarter period) is entitled to a surviving child's benefit. This is the case provided the child is under age 18, over age 18 and disabled by a disability that began before age 22, or under age 19 and a full-time elementary or secondary school student who is not married and was dependent on the deceased parent. LO 7.1.1

In 2023, James earned $8,000 from employment subject to Social Security taxation between January 1 and March 15th. He was then unemployed for the remainder of the year. How many credits of coverage did James earn for 2023? A) 2 B) 4 C) 3 D) 1

B) For 2023, a worker receives 1 credit for each $1,640 in annual earnings on which Social Security taxes are withheld up to a maximum of 4 credits annually. All 4 credits may be earned in the same calendar quarter. LO 7.2.1

Brent and Cara have an adjusted gross income (AGI) of $80,000, and they receive a combined Social Security benefit of $15,000. They have no tax-exempt income. What percentage of their Social Security benefit will be subject to taxation? A) 100% B) 85% C) 50% D) 0%

B) Provisional income = $87,500. This is well over the $44,000 threshold, so 85% of their Social Security benefit will be subject to taxation. LO 7.2.2

All of the following workers are covered by the Social Security system except A) self-employed workers. B) railroad workers covered under the federal Railroad Retirement Act. C) members of the armed services. D) employees of tax-exempt organizations.

B) Railroad workers covered under the federal Railroad Retirement Act are not covered by Social Security but are covered by Medicare if they meet those rules separately. LO 7.1.1

Social Security began as a program to provide retirement income but has been expanded to provide all of the following income except A) survivor benefits to children under age 19 if still in high school or lower. B) survivor benefits to spouse caring for a child under 19. C) survivor benefits to spouses at age 60‒61. D) disability.

B) Survivor benefits are provided to a spouse caring for a child under 16 or disabled. Age 16 is not "sweet 16" for the surviving spouse because when the youngest child turns 16, the survivor benefits ceased for the widow(er) caring for the deceased's child. LO 7.2.1

Mary is 66 years old and receives full old-age benefits from Social Security—in her case, $1,200 per month. Her husband, Ralph, age 67, who has not worked enough quarters outside the home to be covered in his own right, receives 50% of what Mary receives each month ($600). Assume that Mary dies tomorrow. What will Ralph's Social Security benefit be? A) $600 + $1,200, or $1,800 B) $1,200 C) $600 D) $0

B) The $600 spousal benefit stops, and Ralph will begin receiving 100% of Mary's old-age Social Security benefit. This survivor benefit is not reduced because Ralph has reached his full retirement age (FRA) when his wife died. LO 7.2.1

What amount is used to determine a participant's actual Social Security retirement benefit? A) Permitted disparity limit B) Primary insurance amount (PIA) C) QJSA D) Covered compensation limit

B) The PIA is used to determine a participant's actual Social Security retirement benefit. The PIA is derived from the worker's average indexed monthly earnings (AIME), which is based on lifetime earnings history. LO 7.2.1

Which of the following statements is(are) CORRECT regarding the Social Security Windfall Elimination Provision (WEP)? The WEP is designed to reduce Social Security retirement benefits for any worker who is eligible for retirement benefits from multiple employers. An example of a worker who may be subject to the WEP is one who works for a government agency or a foreign employer. The WEP applies to all Social Security benefits for which a family member or dependent of a covered worker may qualify. In the case of a worker subject to the WEP, the provision is applied by reducing the formula used to calculate a worker's primary insurance amount (PIA), resulting in a lower benefit. A) I only B) II and IV C) I and III D) II, III, and IV

B) The WEP does not apply simply if a worker is eligible for retirement benefits from multiple employers. It may apply to a worker who qualifies for a Social Security retirement or disability benefit but who also earns a pension from an employer who does not withhold Social Security taxes. An example of such an employer could be a state or local government agency that had opted out of the Social Security retirement system; a public school employee is some states; or an employer in a foreign country. Under this provision, the formula used to calculate a worker's PIA is reduced, resulting in a lower benefit. Social Security benefits are designed to pay a higher percentage of career average earnings for lower-paid workers than are paid to higher earning workers. Statement III is incorrect because the WEP does not apply to spousal or survivors benefits under Social Security. The Government Pension Offset would apply to Social Security spousal or survivor benefits when the non-Social Security worker is the spouse or the survivor of a fully covered retired or deceased worker. LO 7.2.2

What is the earliest age at which a currently insured worker may claim Social Security retirement benefits based on her own work history? A) Age 67 B) Retirement benefits are not available for a currently insured worker C) Any age over age 59½, but benefits will be reduced D) Age 62

B) The worker must be fully insured to qualify for retirement benefits based on her own work history. Reduced spousal retirement benefits are available as early as age 62. Reduced survivor benefits are available as early as age 60 unless the surviving spouse is disabled, then reduced survivor benefits are available as early as age 50. LO 7.2.1

Social Security payments are A) never included in income for purposes of taxation. B) taxable if your provisional income exceeds the applicable threshold. C) taxed only if you are still employed. D) taxed only if received prior to full retirement age (FRA).

B) This is the case regardless of your age or if you are still employed. LO 7.2.2

Fully insured status for Social Security retirement benefits requires a measure of employment covered by Social Security (OASDI) that is 40 A) years. B) credits of coverage. C) months. D) calendar quarters.

B) To qualify for most benefits under Social Security, an individual must be in fully insured status. This is defined as one credit per year since age 21 with a minimum of 6 and a maximum of 40 credits of covered employment, where an individual has earned above a specified dollar amount. LO 7.2.1

Jeff and Julie, both age 50, are married and are both fully insured under Social Security. They have two children. Amy is 24 and was injured in an auto accident when she was 21 leaving her disabled and dependent on her parents for her care. Brad is 17 and a senior in high school. Jeff's mother, Lisa, is age 66 and lives with the couple but is not a dependent for tax purposes. If Julie dies, who may receive a survivor benefit under Social Security based upon her fully insured status? Amy Brad Jeff Lisa A) I only B) I, II, III, and IV C) I, II, and III D) III and IV

C) Amy, Jeff, and Brad will receive benefits. Amy became disabled before age 22 and will receive a benefit, as will Jeff, who is now her caregiver. Brad will receive a benefit because he is an unmarried child under age 19 and still in high school. Because Lisa is not a dependent, she is not eligible for a benefit. LO 7.2.1

Jill and Mark are celebrating their 20th wedding anniversary, receiving 20-year watches from their employers, and reaching full retirement age (FRA), all on the same day. Which of these statements correctly describes the Social Security benefit Jill is eligible to receive? Her earnings history is essentially the same as Mark's. A) 100% of Mark's benefit B) 75% of Mark's benefit C) 100% of her own benefit D) 85% of her own benefit

C) Currently, the spouse of a Social Security recipient is entitled to 50% of the recipient's primary insurance amount (PIA), subject to a family maximum, as long as the spouse is of full retirement age (FRA) or between age 62 and FRA for reduced benefits. The spouse will take the greater of either 100% of their own benefit or 50% of their spouse's benefit. LO 7.2.1

Under the Social Security system, immediate survivor income benefits based on a deceased worker's primary insurance amount and coverage are available to which of the following persons? A surviving spouse, age 55, caring for the worker's 13-year-old child Unmarried, dependent children under age 18 Unmarried children who become disabled before age 22 A surviving divorced spouse, age 62, who has not remarried and was married to the decedent for more than 10 years A) III and IV B) I only C) I, II, III, and IV D) II and III

C) Each of these persons is eligible for survivor's benefits. LO 7.2.1

Whose Social Security benefit is included in the calculation of the maximum family benefit for those eligible for benefits based on a retired worker's fully insured status? The retired worker's benefit The retired worker's former spouse A dependent child's benefit A caregiver spouse's benefit for caring for a qualified disabled child A) I and II B) III and IV C) I, III, and IV D) I, II, III, and IV

C) Only Statement II is incorrect. Benefits paid to a former spouse of a covered worker are not considered in the application of the family maximum benefit limit. LO 7.2.1

When does the maximum family benefit limitation NOT apply to reduce total Social Security benefits payable? A) When the husband receives a spousal benefit based on the wife's employment record B) When a divorced spouse qualifies for benefits because she is caring for a dependent child of the worker-participant C) When both the husband and the wife receive a retirement benefit based on their own employment record D) When the wife receives a spousal benefit based on the husband's employment record

C) The maximum family benefit limitation does not apply when both the husband and wife receive a retirement benefit based on their own (or each) employment record. It does apply to reduce total Social Security benefits payable in the other situations. LO 7.2.1

To qualify for disability income benefits under Social Security, a worker must have an impairment that A) is expected to result in death within 6 months. B) is related solely to alcoholism. C) is expected to last at least 12 months or result in death. D) is related solely to drug addiction.

C) To qualify for Social Security disability benefits, a person must suffer an impairment that is expected to Medicare tax is assessed on an unlimited amount of compensation. LO 7.1.1

Alice died five years ago. Joe, age 46, Alice's surviving spouse, has been raising their three children (John, Mary, and Susan). Joe earns over $21,000 a year and receives $900 per month from Social Security. Alice was insured under Social Security when she died. Which of these relatives will not be eligible for a survivor benefit this year? A) Mary, who will be 19 next September, will continue to qualify until she graduates from high school this June. B) As the surviving spouse, Joe qualifies for the father's benefit while he is caring for a child under age 16, but the benefit is reduced to zero because of his earnings. C) John, age 20, qualifies for the monthly child benefit because he is a full-time college student. D) Susan, who is age 15, qualifies for the child's monthly benefit.

C) To qualify for the child's benefit, the child must be under age 18, or a full-time student at an elementary or secondary school if under age 19. Mary will still be 18 when she graduates in June, thus, she will be below age 19 until she graduates from high school. A child may also qualify if the child became disabled before reaching age 22. Joe qualifies for the father's benefit, but that benefit is reduced by $1 for each $2 of earned income in excess of the limit for persons under full retirement age (FRA). Joe's income, however, is below the threshold that would start reducing his benefit ($21,240 in 2023).. At John's age, he would only qualify for a benefit if he were disabled. LO 7.2.1

Charles (age 38) has just died. He has been credited with the last 30 consecutive credits of Social Security coverage in the last 30 quarters since he left school and began full-time employment. He had never worked before leaving school. Which of these persons are eligible to receive Social Security survivor benefits as a result of Charles's death? A) Charles's widow, Maggie, age 38 B) Charles's dependent mother, Betty, age 60 C) Charles's child, Dawn, age 19 D) Charles's child, Bill, age 16

D) Dawn is too old under the rules, Maggie does not have a child under age 16 for whom she is caring, and Betty is ineligible because she is not age 62 or older. Only Bill is eligible to receive a dependent or surviving child's benefit. LO 7.2.1

Delaying receipt of benefits (for example until age 70) will result in all of the following except A) higher annual cost-of-living adjustments. B) receipt of delayed retirement credits. C) larger survivor benefits for the surviving spouse. D) permanently reduced benefit amount.

D) Delaying receipt of benefits will allow you to earn delayed retirement credits, and your future cost-of-living adjustments will be higher because they will be based on a higher base. Also, the increased base will ultimately be used to determine survivor benefits. LO 7.2.1

The employer portion of the payroll tax rate, including the portion dedicated to Social Security (OASDI) and the portion dedicated to Medicare funding, on a covered worker's earnings up to the Social Security taxable wage base is A) 6.2%. B) 15.3%. C) 1.45%. D) 7.65%.

D) Employers must pay a combined Social Security (OASDI) and Medicare rate of 7.65%. Employers pay 6.2% for Social Security and 1.45% for Medicare. The Social Security portion is payable up to the Social Security wage base of $160,2000 for 2023. The Medicare portion is paid without an income limit. LO 7.1.1

If a retiree's annual Social Security benefit is $9,000 at age 62 and $9,600 at age 63, how many years would it take to equal the benefit of forgoing a year of payments (waiting one more year to receive a larger payment), not including inflation? A) 8 years B) 13 years C) 11 years D) 15 years

D) Start with the amount the person would be "ahead" if they began to receive benefits at the earlier age. In this case, starting at age 62 would mean getting $9,000 for that year. Next, divide the amount you are ahead by the increase in the monthly or annual amount if you started at the second age. This determines the break-even time from the second age. In this case, the $9,000 divided by the extra amount ($600/year) equals 15 years to equal the same benefit taking the larger amount the next year ($9,000 ÷ $600 = 15 years). A 15-year break-even age means this person or their spouse would need to live past age 78 (63 + 15) to justify waiting. LO 7.2.1

What is the taxable wage base for 2023 subject to full Social Security taxation? A) Unlimited B) $330,000 C) $66,000 D) $160,200

D) The Social Security taxable wage base (TWB) in 2023 is $160,200. LO 7.1.1