Solutions

Chapter 1

Knowledge check solutions

    1. Correct. Social Security was enacted in 1935.
    2. Incorrect. Medicaid was created by the Social Security Act Amendments of 1965, which added Title XIX to the Social Security Act.
    3. Incorrect. SSI began in 1974.
    4. Incorrect. Medicare began in 1965.
    1. Incorrect. The Medicare portion of FICA tax applies to unlimited amounts of wages.
    2. Correct. The taxable wage base operates to limit the OASDI portion of FICA tax.
    3. Incorrect. The Medicare portion of FICA tax applies to unlimited amounts of wages.
    4. Incorrect. The taxable wage base has nothing to do with discrimination in FICA taxation.
    1. Incorrect. IRA distributions are not considered in determining the amount of unearned income to which the new 3.8% tax on unearned income applies.
    2. Incorrect. Form 1099 income is earned income. The 3.8% Medicare surtax applies to unearned income.
    3. Correct. Long-term capital gain is considered in determining the amount of unearned income to which the new 3.8% tax on unearned applies.
    4. Incorrect. IRC Section 121 applies to the exclusion of gains on homes sales not exceeding $250,000 or $500,000 (on a joint return).

Chapter 2

Knowledge check solutions

    1. Incorrect. Six credits were the minimum amount to have fully insured status.
    2. Incorrect. Thirteen credits are not a minimum number of credits for any status of coverage.
    3. Correct. After 40 credits, the worker is permanently and fully insured and eligible for all (nondisability) benefits including retirement benefits.
    4. Incorrect. One hundred eighty credits are not a minimum number of credits for any status of coverage.
    1. Incorrect. Form K-1 is used to report “pass-thru” income.
    2. Incorrect. Form 1099 SSC doesn’t exist.
    3. Correct. Form W-2 is used to report an employee’s Social Security earnings to the Social Security Administration.
    4. Incorrect. Form 1099-Misc is used to report various types of income to the IRS.
    1. Incorrect. The credits must be earned in the period beginning with the quarter after the quarter he or she turned 21 and ending with the quarter he or she became disabled.
    2. Incorrect. Generally, a FICA-covered worker obtains disability-insured status if he or she earned at least 20 QCs during the last 10 years and has attained fully insured status. Exceptions apply for those under age 31 and in certain other cases.
    3. Correct. Workers who have not yet turned 31 will be fully insured if they have credits in at least one-half of the calendar quarters during the period beginning with the quarter after the quarter they turned 21 and ending with the quarter they became disabled.
    4. Incorrect. Generally, a FICA-covered worker obtains disability-insured status if he or she earned at least 20 QCs during the last 10 years and has attained fully insured status.

Chapter 3

Knowledge check solutions

    1. Incorrect. Age 60 is the earliest age for widower benefits.
    2. Incorrect. Age 65 is the FRA/NRA for workers born in or before 1937.
    3. Incorrect. Age 66 is the FRA/NRA for workers born 1943–1954.
    4. Correct. The FRA/NRA for workers born in or after 1960 is age 67.
    1. Incorrect. Clark’s benefit will be reduced because he claims the benefit prior to his FRA/NRA.
    2. Correct. Clark’s retirement benefit will be reduced by 5/9 of 1% for each month of benefits paid before his FRA/NRA. His benefit will be reduced by 20%.
    3. Incorrect. The 5/12 of 1% reduction for each month of benefits paid before his FRA/NRA only applies if Clark claims benefits more than 36 months prior to his FRA/NRA.
    4. Incorrect. Clark’s retirement benefit will be reduced by 5/9 of 1% for each month of benefits paid before his FRA/NRA. His benefit will be reduced by 20%.
    1. Incorrect. Clara may not claim both benefits. Clara may claim 50% of Robert’s PIA because it is higher than her own benefit.
    2. Incorrect. Clara may claim 50% of Robert’s PIA because it is higher than her own benefit.
    3. Correct. Clara may claim 50% of Robert’s PIA because it is higher than her own benefit.
    4. Incorrect. There is no reduction for early retirement because she waited until her FRA/NRA to claim benefits.
    1. Correct. The statement is incorrect. Actuarially, the Social Security administration determined that the average person would ultimately receive the same amount of benefits from the time they start to their death under each of these scenarios. A person can receive a reduced Social Security benefit at age 62, a full benefit at age 66 (currently), or an enhanced benefit by waiting as long as to age 70.
    2. Incorrect. The statement is correct. Social Security benefits are increased by a certain percentage (depending on date of birth) if a fully insured worker delays retirement beyond full retirement age. The benefit increase no longer applies once the potential benefit recipient reaches age 70, even if the fully insured worker continues to delay taking benefits. When, from family history, a fully insured worker anticipates a long lifespan, delaying benefits, of course, would be more economically productive.
    3. Incorrect. The statement is correct. There are many reasons why the majority of older Americans choose to take Social Security retirement benefits prior to their normal retirement age. The early benefits carry present value, and the breakeven analysis often makes the argument unless the benefit recipient will lead a very long life.
    4. Incorrect. The statement is correct. The earliest age a fully covered worker can begin getting Social Security retirement benefits is 62. Many Americans are forced by necessity to take benefits as soon as they become eligible. Their benefits will be permanently lowered by this decision, but cash flow needs ultimately drive the decision to claim early benefits. According to the Social Security Administration, approximately 74% of retired workers claimed their benefits earlier than full retirement age.

Chapter 4

Knowledge check solutions

    1. Incorrect. Kim is not eligible because she is in college.
    2. Incorrect. Tim is not eligible because he is married.
    3. Correct. To be eligible for survivor benefits as the child of a deceased worker, the child must be younger than 19, unmarried, and a high school student; or younger than 18 and no longer a student.
    4. Incorrect. Slim is not eligible because he is too old.
    1. Correct. Having a child in care is a basic requirement for some benefits, including spouse’s benefits for a spouse younger than age 62 and for mother’s and father’s benefits. According to the Social Security Administration, “in care” means exercising parental control and responsibility for the welfare and care of a child younger than age 16 or a mentally disabled child aged 16 or older; or performing personal services for a physically disabled child aged 16 or older.
    2. Incorrect. To be entitled to widow or widower’s child in care benefits, constant supervision is not required.
    3. Incorrect. To have a child in care means that the deceased worker’s widow or widower is exercising parental control and responsibility for the welfare and care of the child, not supporting the educational needs of the deceased’s child.
    4. Incorrect. The deceased worker’s widow or widower need not provide all physical care for the deceased’s child. To have a child in care means that the deceased worker’s widow or widower is exercising parental control and responsibility for the welfare and care of the child.
    1. Incorrect. The three-month period refers to another rule, where an exception is available if the deceased worker died within three months of an accident or died while on active duty in the armed services. There a survivor benefit may be available for a younger surviving spouse if that survivor is caring for a child aged 16 or younger.
    2. Correct. An application for an ongoing monthly Social Security death benefit should be filed within six months of the worker’s death. This is because no more than six months’ worth of benefits will be paid retroactively.
    3. Incorrect. The nine-month period refers to another rule. There is a survivor benefit potentially available for a younger surviving spouse if that survivor is caring for a child aged 16 or younger. The general rule is that to qualify for this benefit, the surviving spouse had to have been married to the deceased spouse for at least nine months.
    4. Incorrect. Eighteen months’ retroactive payments to survivors may go back only six months.

Chapter 5

Knowledge check solutions

    1. Incorrect. Disability benefit payments start only after the applicant has been disabled for five months.
    2. Correct. Disability benefit payments start after the applicant has been disabled for five months, then continue until the benefit recipient’s condition has improved to the level that he or she is able to return to work.
    3. Incorrect. This is the trial work period for persons who are working while collecting disability benefits.
    4. Incorrect. This period refers to one who has been collecting disability benefits for 24 months, after which time a beneficiary may become eligible for Medicare.
    1. Correct. The number of Social Security credits or quarters that a disabled applicant needs to qualify for disability benefits depends on the age at which the applicant becomes disabled. Generally, an applicant needs 40 credits, 20 of which were earned in the last 10 years ending with the year in which the disability started.
    2. Incorrect. This is a reference to the rule for younger workers. For applicants before age 24, a disabled applicant may qualify having earned six credits in the three-year period ending when the disability begins.
    3. Incorrect. This rule refers to applicants who are age 24 to 31. A disabled applicant may qualify having credits attributable to working half the time between age 21 and when the disability commences.
    4. Incorrect. The general eligibility requirement for Social Security disability income benefits is 40 credits, 20 of which were earned in the last 10 years ending with the year in which the disability started. For applicants 31 or older, in general, the disabled applicant must have earned 20–40 work credits, depending on age. Unless the applicant is blind, he or she must have earned at least 20 of the credits in the 10 years immediately preceding the onset of disability.
    1. Correct. According to the Social Security Administration, an applicant must suffer from a medical condition that meets the Social Security Administration’s definition of disability. SSDI benefits are eligible only to those with a severe, long-term, total disability. Total disability means the inability perform any substantial gainful activity for at least one year.
    2. Incorrect. The inability of the insured to perform the tasks associated with the job at which he or she was employed when the disability began is one factor in considering disability. However, SSDI benefits are eligible only to those with a severe, long-term, total disability. The fact that the condition interferes with work-related tasks, refers to “severity” not to the issue of total disability. Total disability means the inability of the insured to perform any gainful employment; not just one’s last means of employment.
    3. Incorrect. This fact alone will not constitute total disability. The impairment or combination of impairments must be of such severity that the applicant is not only unable to do his or her previous work but cannot, considering his or her age, education, and work experience, engage in any other kind of substantial gainful work which exists in the national economy.
    4. Incorrect. The fact that one’s doctor may have advised someone not to work, or that he or she feels too ill to work, does not necessarily mean that the SSA will consider that individual to be disabled.
    1. Incorrect. The five-month period refers to the rule that disability benefit payments start after the applicant has been disabled for five months, then continue until the benefit recipient’s condition has improved to the level that he or she is able to return to work.
    2. Incorrect. When there is a real possibility that a claimant’s condition may improve, in typical circumstances, Social Security reviews whether his or her disability benefits should continue every three years or fewer.
    3. Correct. Most claims are set for review every three or seven years, depending on the likelihood that a benefit recipient’s condition will improve. If a claimant has a condition that is expected to medically improve, a CDR may be conducted even sooner than three years.
    4. Incorrect. This period refers to Social Security beneficiaries whose condition is not expected to improve or are disabled due to a permanent condition (such as a lost limb or impaired intellectual functioning). In those cases, claims may be reviewed even less than every seven years.
    1. Incorrect. Although it is true that disability benefits generally stop because of a person’s medical improvement or work at the substantial gainful activity level, they will generally not stop immediately.
    2. Incorrect. There is an additional grace period of two months—not one month—after the month of notice, in which the recipient will continue to get benefits.
    3. Correct. Following a notification that a claimant is no longer eligible for Social Security disability income benefits, such benefits continue through a two-month grace period that follows the month of notice.
    4. Incorrect. The general rule is that a claimant is no longer considered as disabled for purposes of receiving disability benefits in the month in which the cessation notice is mailed to the benefit recipient. Presuming that the recipient does not request a continuation of benefits, then his or her benefits will continue during the disability cessation month and the following two-month grace period.

Chapter 6

Knowledge check solutions

    1. Incorrect. In the absence of an election, the Social Security Administration is not responsible to withhold and collect estimated tax on the payments. A taxpayer may elect to have federal income tax withholding on his or her Social Security benefits.
    2. Correct. The taxpayer may elect to have federal income tax withholding on his or her Social Security benefits.
    3. Incorrect. There is no presumption that the taxpayer will make estimated quarterly payments. If the taxpayer elects to have federal income tax withholding on his or her Social Security benefits, the Social Security Administration will withhold federal income tax as requested.
    4. Incorrect. If the taxpayer elects to have federal income tax withholding on his or her Social Security benefits, the Social Security Administration will withhold federal income tax as requested. The Social Security Administration is not absolved of its duty because the administrative burden is too great.
    1. Incorrect. Herman is not required to recognize the lump-sum benefit in a single tax year because it is not attributable to a single tax year. Herman may elect to prorate the retroactive benefits between the current tax year and the prior tax year. He is not required to do so.
    2. Correct. Herman may elect to prorate the retroactive benefits between the current tax year and the prior tax year.
    3. Incorrect. There is no requirement to prorate the retroactive benefits between the current tax year and the prior tax year. He may, however, elect to do so.
    4. Incorrect. Two-year income averaging is not available in conjunction with retroactive Social Security disability income insurance payments. Herman may elect to prorate the retroactive benefits between the current tax year and the prior tax year. He is not required to do so.

Chapter 7

Knowledge check solutions

    1. Incorrect. Taxpayers with much lower AGIs than Herbert would pay the minimum premium of $134 per month. Herbert’s AGI is substantially more than the single taxpayer threshold that increases his Medicare Part B premium to $428.60 per month.
    2. Incorrect. The $268 figure represents the premium that would be paid by an individual with income of between $107,000 and $133,500 (for individuals) and between $214,000 and $267,000 for those filing a joint return.
    3. Incorrect. The $428.60 figure is correct, but Herbert’s Medicare Part B premium is $428.60 per month, not year.
    4. Correct. Herbert’s AGI is substantially more than the single taxpayer threshold that increases his Medicare Part B premium to $428.60 per month.
    1. Incorrect. Medicare premiums may be deductible; but only if they reach certain thresholds.
    2. Incorrect. Subject to certain limitations, medical expenses are generally deductible as an itemized deduction on the taxpayer’s Schedule A. A Medicare beneficiary can generally count premiums for Part A, Part B, Medicare private health plans, and Part D drug plans as allowable medical expenses for purposes of claiming the Schedule A itemized deduction for medical expenses.
    3. Correct. Medicare premiums are aggregated with other medical expense and long-term-care premiums as well as eligible unreimbursed medical expenses to the extent that they exceed 10% of the taxpayer’s AGI (7½% for taxpayers age 65 and older through 2016 and again starting in 2018). Blake is age 70.
    4. Incorrect. The $2,010 cap refers to the annual per beneficiary therapy cap amount for physical therapy and speech language pathology services.
    1. Incorrect. Although the maximum benefit period for hospice care is generally 180 days, if the patient is living but still certified as terminal, the hospice benefits will continue in normal amounts until the patient dies (or improves).
    2. Incorrect. Hospice care does not automatically continue unless a physician recertified a patient after six months.
    3. Incorrect. There would be no additional copayment for Gary to be recertified and continue to get hospice care.
    4. Correct. Although the standard hospice benefit period is six months, Medicare will continue to cover a patient’s hospice care as long as the hospice physician or the medical director of the hospice facility recertifies the patient to be terminally ill.
    1. Incorrect. The statement is true. Medicare Part A covers in-patient or hospital care (and more).
    2. Incorrect. The statement is true. Medicare Part A provides benefits for hospice care.
    3. Incorrect. The statement is true. Medicare Part A provides physician-ordered rehabilitative care in a skilled nursing facility (SNF). Medicare Part A (hospital insurance) may cover care given in a certified SNF if it’s medically necessary to have skilled nursing care.
    4. Correct. The statement is false. Medicare Part A (Hospital Insurance) may cover care given in a certified SNF if it’s medically necessary to have skilled nursing care (for example, changing sterile dressings). However, most nursing home care is custodial care (for example, help with bathing or dressing). Medicare doesn’t cover custodial care if that’s the only care needed.
    1. Incorrect. The statement is true. Medicare Part B (medical insurance) covers doctor and other healthcare providers’ services.
    2. Correct. The statement is false. Medicare Part B does cover home healthcare. Medicare Part B does cover outpatient care, durable medical equipment, home healthcare, and some preventive services.
    3. Incorrect. The statement is true. Medicare Part B provides coverage for an annual wellness visit. It covers care to prevent illness (like the flu) or detect it at an early stage when treatment is most effective.
    4. Incorrect. The statement is true. Medicare Part B covers an annual flu shot. It covers care to prevent illness (like the flu) or detect it at an early stage.
    1. Incorrect. The statement is true. Medicare Part C or Medicare Advantage plans generally operate as PPOs and HMOs.
    2. Incorrect. The statement is true. Medicare Part C or Medicare Advantage plans generally provide their services through network doctors and hospitals.
    3. Incorrect. The statement is true. Many, but not all, Medicare Advantage plans provide prescription drug coverage.
    4. Correct. The statement is false. Medicare Part D (not Part C) is a prescription drug program that dovetails private insurance policies with Medicare coordination. Medicare Part D covers out-patient prescription drugs (with some limitations).

Chapter 8

Knowledge check solutions

    1. Incorrect. Although the Social Security Administration had hoped for solvency over the next 75 years, quantitative analysis makes clear that the system is solvent only until 2034.
    2. Incorrect. Experts expect the annual cost of Social Security benefits (expressed as a share of workers’ taxable earnings) to grow to roughly 16.6% in 2038 and then decline slightly before slowly increasing after 2050.
    3. Correct. The Social Security Administration’s analysis presumes that the OASDI system will be inadequately funded by 2027–2034.
    4. Incorrect. Although the combined OASDI program continues to fail the long-range test of close actuarial balance, it does satisfy the test for short-range (10-year) financial adequacy. The trustees project that the combined trust fund asset reserves at the beginning of each year will exceed that year’s projected cost through 2027.
    1. Correct. Eliminating the taxable wage base would be most likely (from among the choices shown) to lower the shortfalls in the Social Security and Medicare systems.
    2. Incorrect. Lowering the taxable wage base would reduce FICA tax and increase the shortfall.
    3. Incorrect. Repealing the Medicare tax on unearned income would reduce revenues to Medicare and worsen the shortfall.
    4. Incorrect. Permitting pharmaceutical companies to charge Medicare enrollees full retail price for prescription drugs would worsen the shortfall, particularly in light of Medicare Part D.
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