CRPC Practice Exam 2 Questions with
Complete Solutions
Which of the following is correct regarding the additional payroll tax for high wage earners that
was brought about by the Affordable Care Act? Correct Answ_A) The tax applies to those
with an AGI in excess of $500,000.
B) The tax is 1.9%.
C) The tax is split between the employer and employee.
D) The tax was designed to provide additional funding for Medicare.
--D
This tax is an additional Medicare tax. The 0.9% tax is employee paid and applies to high earners
only (AGI in excess of $250,000 for joint filers and $200,000 for single filers, not indexed).
Mark, a financial adviser, has a client who has worked in two positions during his lifetime. The
client's first position was a state or local government position that was not covered by Social
Security. The client is receiving a pension from that employment. His second position was
covered by Social Security and he is eligible for Social Security retirement benefits. Mark should
advise his client that Correct Answ_his eligibility for Social Security retirement benefits may
be reduced due to the windfall elimination provision (WEP).
,Worked in a position that was not covered by Social Security, and the client is receiving a
pension from that employment, Correct Answ_If you have a client who has worked in a
position that was not covered by Social Security, and the client is receiving a pension from that
employment, his eligibility for Social Security benefits based on his own work history covered
by Social Security may be reduced due to the windfall elimination provision (WEP). The
government pension offset provision (GPO) impacts Social Security benefits owed to spouses,
ex-spouses, or to survivor benefits. If he has one or more survivors entitled to a benefit, the
Social Security Administration recalculates the benefit to omit the WEP, which results in a higher
survivor benefit. Reductions due to the WEP are NOT reflected in Social Security benefit
estimates. One way to differentiate between the two is focusing on the "W" in WEP. The "W"
can remind you of "worker." Thus, the WEP reduces Social Security retirement benefits based on
your own work history. That leaves the GPO as the one that reduces a spousal Social Security
benefit based on what the spouse is getting from a retirement plan based on employment that did
not pay into Social Security (such as public school teachers in several states).
Suzy begins her Social Security retirement benefit at full retirement age (FRA). What is the
amount that she will receive? Correct Answ_primary insurance amount (PIA)
Workers who begin their Social Security retirement benefits at full retirement age will receive
their primary insurance amount (PIA). This amount is based their lifetime average earnings, or
AIME. If they delay their benefits until after attaining FRA they will begin to be credited with
,DRCs. Those who are only currently insured (not fully insured) are not eligible for Social
Security retirement benefits.
Henry, a fully insured worker for Social Security purposes, will retire next month at the age of
62. Henry is concerned that he may lose some of his Social Security benefits because of the
earnings limitation test.
Which of the following sources of Henry's income are counted for purposes of the earnings
limitation test?
I. IRA withdrawals
II. self-employment earnings
III. pension annuity payments
IV. inheritance payments
V. dividend income Correct Answ_-- II only
"Excess" earned income by Social Security beneficiaries who are under Social Security's full
retirement age results in a partial or full loss of benefits, depending on the age of the person, the
amount of Social Security benefit, and the amount of earned income. "Earned income" generally
includes wages, salary, and self-employment earnings; investment income is not included in this
definition. The following non-work sources of income do not count as wages for the earnings
test: IRA withdrawals, pension annuity payments, inheritance payments, and dividend income.
, Assume that a worker's Social Security full retirement age is 66. What percentage of the worker's
full retirement age benefits will be paid to her at age 62? Correct Answ_-- 75%
A worker can begin receiving Social Security retirement benefits at age 62, but at a 25%
reduction from the full amount that would be received at full retirement age 66. The percentage
of this worker's full retirement age benefits that will be paid to her at age 62 is 75% [(5/9 of 1%
per month for each of the first 36 months prior to full retirement age = 20%) + (5/12 of 1% 12
months = 5%); 20% + 5% = 25%].
What is the maximum percentage of Social Security benefits that may be taxed? Correct
Answ_85%
The maximum percentage of Social Security benefits that may be taxed is 85%, which occurs
when an individual's provisional income exceeds the upper limit of the tax threshold ($34,000 for
single filers and $44,000 for married filers).
Correct Answ_
Complete Solutions
Which of the following is correct regarding the additional payroll tax for high wage earners that
was brought about by the Affordable Care Act? Correct Answ_A) The tax applies to those
with an AGI in excess of $500,000.
B) The tax is 1.9%.
C) The tax is split between the employer and employee.
D) The tax was designed to provide additional funding for Medicare.
--D
This tax is an additional Medicare tax. The 0.9% tax is employee paid and applies to high earners
only (AGI in excess of $250,000 for joint filers and $200,000 for single filers, not indexed).
Mark, a financial adviser, has a client who has worked in two positions during his lifetime. The
client's first position was a state or local government position that was not covered by Social
Security. The client is receiving a pension from that employment. His second position was
covered by Social Security and he is eligible for Social Security retirement benefits. Mark should
advise his client that Correct Answ_his eligibility for Social Security retirement benefits may
be reduced due to the windfall elimination provision (WEP).
,Worked in a position that was not covered by Social Security, and the client is receiving a
pension from that employment, Correct Answ_If you have a client who has worked in a
position that was not covered by Social Security, and the client is receiving a pension from that
employment, his eligibility for Social Security benefits based on his own work history covered
by Social Security may be reduced due to the windfall elimination provision (WEP). The
government pension offset provision (GPO) impacts Social Security benefits owed to spouses,
ex-spouses, or to survivor benefits. If he has one or more survivors entitled to a benefit, the
Social Security Administration recalculates the benefit to omit the WEP, which results in a higher
survivor benefit. Reductions due to the WEP are NOT reflected in Social Security benefit
estimates. One way to differentiate between the two is focusing on the "W" in WEP. The "W"
can remind you of "worker." Thus, the WEP reduces Social Security retirement benefits based on
your own work history. That leaves the GPO as the one that reduces a spousal Social Security
benefit based on what the spouse is getting from a retirement plan based on employment that did
not pay into Social Security (such as public school teachers in several states).
Suzy begins her Social Security retirement benefit at full retirement age (FRA). What is the
amount that she will receive? Correct Answ_primary insurance amount (PIA)
Workers who begin their Social Security retirement benefits at full retirement age will receive
their primary insurance amount (PIA). This amount is based their lifetime average earnings, or
AIME. If they delay their benefits until after attaining FRA they will begin to be credited with
,DRCs. Those who are only currently insured (not fully insured) are not eligible for Social
Security retirement benefits.
Henry, a fully insured worker for Social Security purposes, will retire next month at the age of
62. Henry is concerned that he may lose some of his Social Security benefits because of the
earnings limitation test.
Which of the following sources of Henry's income are counted for purposes of the earnings
limitation test?
I. IRA withdrawals
II. self-employment earnings
III. pension annuity payments
IV. inheritance payments
V. dividend income Correct Answ_-- II only
"Excess" earned income by Social Security beneficiaries who are under Social Security's full
retirement age results in a partial or full loss of benefits, depending on the age of the person, the
amount of Social Security benefit, and the amount of earned income. "Earned income" generally
includes wages, salary, and self-employment earnings; investment income is not included in this
definition. The following non-work sources of income do not count as wages for the earnings
test: IRA withdrawals, pension annuity payments, inheritance payments, and dividend income.
, Assume that a worker's Social Security full retirement age is 66. What percentage of the worker's
full retirement age benefits will be paid to her at age 62? Correct Answ_-- 75%
A worker can begin receiving Social Security retirement benefits at age 62, but at a 25%
reduction from the full amount that would be received at full retirement age 66. The percentage
of this worker's full retirement age benefits that will be paid to her at age 62 is 75% [(5/9 of 1%
per month for each of the first 36 months prior to full retirement age = 20%) + (5/12 of 1% 12
months = 5%); 20% + 5% = 25%].
What is the maximum percentage of Social Security benefits that may be taxed? Correct
Answ_85%
The maximum percentage of Social Security benefits that may be taxed is 85%, which occurs
when an individual's provisional income exceeds the upper limit of the tax threshold ($34,000 for
single filers and $44,000 for married filers).
Correct Answ_
