Gary's Accounting Answer
1. The best place to read your gross earnings on a W-2 is:
(a) Box 1 Wages, tips, other compensation
(b) Box 2 Social Security wages
(c) Box 5 Medicare Wages and tips
(d) Box 16 State wages, tips, etc.
Answer (c) because the Medicare wage base is unlimited. Choice (a) does not include your earned income that you invested as 401K contributions, and it does not include your earned income that you spent on medical insurance, and it does include your Employer-Paid Benefits (the IRS treats that as earned income, but you do not personally receive it). Choice (b) has a wage base, for example the cap was $94,200 in 2006, meaning that the number in Box 2 in 2006 can't exceed $94,200. Choice (d) has the same explanation as choice (a).
2. Most of the money that retirees get from Social Security comes directly from:
(a) Money from payroll taxes paid by all other workers.
(b) Money from sales of stocks, bonds, mutual funds, and other securities that Social Security invested in with payroll taxes.
(c) Money from the Social Security Trust Fund, because payments to retirees exceed the revenues of payroll taxes.
(d) Money from various emergency trust funds that were created over the past ten years because Social Security went bankrupt.
Answer (a) because Social Security is similar to an unsustainable model called a Pyramid Scheme. Choice (b) investments in securities would expose Social Security to risk, so investments in 'private accounts' are not permitted. Choice (c) may come to fruition, as projections are that current receipts will exceed expenditures in 2019. Choice (d) may come to fruition, as much of the money in the Trust Fund is held in, which are "IOUs" for loans owed to the Trust Fund, and the Trust Fund could be completely depleted by 2042.
3. The following statement is true:
(a) United States issued currency circulating today is backed up by gold held by the Treasury department.
(b) The United States budget is not permitted to include more spending than revenues, because that could cause the United States to declare bankruptcy.
(c) The $300 and $600 payments that most Americans got in 2001 from the United States treasury was a refund on their 2001 taxes.
(d) The United States tax system is a progressive tax system, where the tax rate increases as income increases, so the highest-earning individuals pay the highest tax rate.
Answer (d) because the tax brackets reflect higher tax rates for higher earning. Choice (a) the US began going off the gold standard in 1933 (Richard Nixon eradicated its last remnants during his presidency). Choice (b) the US is currently operating with a multi-billion dollar deficit, but the US is not required to declare bankruptcy. Choice (c) that "refund" was actually an advance on their 2002 refund; because the lowest tax bracket's 15% rate was unchanged from 2001 to 2002 for people who did get the "refund".