Competency 14 Section 5

Question 1

1. Beginning in 2013, there will be a 0.9% additional payroll tax for high-income earning
   individuals.

Answer 1

True. (LO 14-5-1)

Question 2

2. Employers are only required to withhold the 0.9% after a taxpayer reaches the
   $200,000 mark, without regard to the income of his or her spouse.

Answer 2

True. This could cause tax issues for married individuals that meet the income
threshold for this new tax. (LO 14-5-1)

Question 3

3. Beginning in 2013, there will be a new tax on investment income.

Answer 3

True. (LO 14-5-2)

Question 4

4. The new net investment income tax only applies to investment income above tax
   thresholds.

Answer 4

True. (LO 14-5-2)

Question 5

5. If an individual’s sole income came from investment income and their modified
   adjusted gross income for the year was $180,000, they would not be subject to the
   new investment income tax

Answer 5

True. The tax is based only on the investment income above the threshold levels,
which in this case for an individual filing is $200,000. (LO 14-5-2)

Question 6

6. Qualified retirement plan distributions are excluded from the definition of investment
   income

Answer 6

True. (LO 14-5-2)

Question 7

7. The threshold for determining whether health care expenses are deductible is
   increasing from 7.5 percent of AGI to 10 percent of AGI in 2013.

Answer 7

True. (LO 14-5-3)

Question 8

49. Which of the following are true about the high earnings additional payroll tax that takes effect in 2013? (LO 14-5-1)
    I. The income threshold for the tax is not indexed for inflation.
    II. Employers are only required to withhold the 0.9 percent tax after a taxpayer reaches the $200,000 wage threshold.
    A. I only
    B. II only
    C. Both I and II
    D. Neither I nor II

Answer 8

49. The answer is C. Both statements are correct.

Question 9

77. For purposes of the new investment income tax that takes effect in 2013, all of the following are included as investment income for tax purposes EXCEPT (LO 14-5-2)
A. Royalties
B. Dividends
C. Tax-exempt bond interest
D. Capital gains

Answer 9

77. The answer is C. Tax-exempt bond interest is not counted when determining investment income subject to the new tax.