Chapter 12: Tax Credits and Payments

For credits for retirement plan contributions, the maximum credit allowed to an individual is

$1,000 ($2,000 * 50%)

The lifetime learning credit is available for the first ____ of tuition per year.

$10,000

The child and dependent tax credit allows ____ per eligible child and ___ per eligible non-child dependent.

$2,000; $500

The American Opportunity Credit permits a maximum credit of ___ per year.

$2,500

Earned Income Ceiling for Child and Dependent Care Tax Credit: If a spouse is a full-time student, he/she is deemed to have earned income of ___ per month with one qualifying dependent and ___ per month with two or more qualifying dependents. Only months for which the student is _____ are counted.

$250; $500; enrolled on a full-time basis

Employees are subject to additional medicare tax with wages exceeding:

$250k for MFJ (both spouses count toward this amount), $125k for MFS, and $200,000 for everyone else

Self-employed individuals are subject to an additional medicare tax with wages exceeding:

$250k for MFJ (both spouses count toward this amount), $125k for MFS, and $200,000 for everyone else

In general, the child and dependent care tax credit is equal to a percentage of unreimbursed employment-related expenses up to ____ for one qualifying dependent and ____ for two or more qualifying dependents.

$3,000; $6,000

Phaseout for the lifetime learning credit begins when AGI reaches ____ and ends when AGI reaches ____.

$57k ($114k for MFJ); $69k ($138k for MFJ)

The American Opportunity credit amount is phased out, beginning when the taxpayer's AGI reaches ____ and ends when the taxpayers AGI reaches ____

$80k ($160k for MFJ); $90k ($180k for MFJ)

What is the additional medicare tax percentage?

0.9%

In 2020, up to $_____ of expenses for adopting an eligible child qualify for the credit.

14,300

To be an eligible dependent for the child and dependent tax credit, the dependent must be

17 and older, a U.S. citizen, and claimed as a dependent on taxpayer's return.

To qualify for credits for retirement plan contributions a taxpayer must be at least

18 years old

To be a qualifying child for the EIC, the child must be under ___ years old.

19 (under 24 if full-time student)

The lifetime learning credit permits a maximum of ____ of qualifying expenses incurred in a year in which the ____ is not claimed.

20%; American Opportunity Credit

The adoption expense tax credit is subject to a phase out for individuals MFJ when AGI reaches $_____ and is gone when AGI reaches $______.

211,160; 251,160

Child and dependent care tax credits are reported on Form

2441

The additional medicare tax on unearned income for individuals is an additional ____.

3.8%

_____ of the American Opportunity credit is refundable.

40%

Since the adoption expense tax credit is a nonrefundable credit, unused adoption credits can be carried forward up to ____ on a ____ method.

5 years; FIFO

Advance payments for the EIC are limited to ___ of the credit during the tax year

60%

The tax credit for elderly or disabled applies to taxpayers age ___ or older.

65

To compute estimated tax, the first step is to calculate the required annual payment. This is the smaller of:

90% of the tax shown on the current year's return or 100% of the tax shown on last year's return.

True/False To qualify for the EIC, an individual must have a qualifying child.

False If a taxpayer does not have a qualifying child, he/she must be between the ages of 25-64 and cannot be claimed as a dependent on another taxpayer's return.

True/False The lifetime learning credit cannot be used for taxpayers who take graduate training or continuing education.

False It can be used for these taxpayers.

True/False All nonrefundable tax credits can be carried forward to future years

False Some can be; others cannot.

True/False Refundable tax credits can be carried forward into future tax years

False given only in the current tax year; cannot be carried forward

True/False A taxpayer can use both foreign tax credit (FTC) and the foreign earned income exclusion.

False. Cannot use both of these.

What are the eligibility requirements for the child and dependent care tax credit?

If married, generally must file MFJ, taxpayer must maintain a household for either a dependent under age 13 or a dependent or spouse who is mentally or physically incapacitated who lives with the taxpayer for more than 1/2 the year.

When can you take the adoption expense tax credit?

In the year the adoption is final.

What has changed in the last few years with the child and dependent tax credit?

It has been expanded to include qualifying children and qualifying dependents. It is now called "Child and Dependent Tax Credit." Also, the credit was $1,000 per eligible child and starting in 2018, it is now $2,000 per eligible child.

The additional medicare tax on unearned income for individuals is an additional 3.8% on the lesser of:

Net investment income or an excess of Modified AGI (MAGI) over $250k MFJ, $125k MFS, and $200k on all others.

What exception applies to children under 18 that are employed by their parent(s)?

No FICA withholding required.

Credits for retirement plan contributions are refundable/nonrefundable.

Nonrefundable

The elderly and disabled tax credit is calculated and reported on Schedule

R

What order must tax credits be used in?

Refundable credits wage withholdings Earned Income Credit Affordable Care Act premium credit Nonrefundable credits

Tax credits that are not dependent on a taxpayer's tax liability

Refundable tax credits

The base amount for the tax credit for elderly or disabled is reduced by

SS benefits, railroad retirement, and certain excluded pension benefits, and 1/2 of taxpayer's AGI in excess of threshold amount.

Tax deductions reduce ___ income.

Taxable

Is the child and dependent tax credit a refundable or nonrefundable tax credit? Why?

The child tax credit is refundable, but it is "partially refundable" credit, up to $1,400 per child, but no more than 15% of earned income in excess of $2,500. The dependent tax credit is nonrefundable.

Taxpayers that adopt a child _____ (can/cannot) take a tax deduction for paying for the birth mother's medical expenses.

cannot

To be a qualifying child for the EIC, the child must be related to the taxpayer, such as a

child, grandchild, stepchild, or foster child.

Credits for retirement plan contributions encourage lower- and middle-income taxpayers to

contribute to qualified retirement plans.

The FTC is available to individuals and to

corporations

Are refundable tax credits dependent or not dependent on a taxpayer's tax liability

dependent

The foreign tax credit (FTC) provides tax relief from ____ to individuals with foreign income

double taxation

To qualify for the EIC, an individual must have ____ income and meet AGI thresholds.

earned

The ___ credit provides income tax equity to the working poor to encourage economically disadvantaged individuals to become members of the workforce.

earned income (EIC)

Qualifying employment-related expenses for the child and dependent care tax credit are limited to an individual's ____. For married taxpayer's, this limitation applies to the ____.

earned income; lesser paid spouse.

The child and dependent care tax credit can be used for _____ expenses

employment-related

The amount of tax an individual expects to owe for the year after subtracting tax credits and income tax withheld

estimated tax

If a taxpayer receives wages and has a second job with the combined total in excess of the Social Security tax threshold, he will get a credit for his

excess SS withholding

How long must a qualifying child reside with the taxpayer to be eligible for the EIC?

in the U.S. for 1/2 the tax year and for the entire year for foster children

Tax liabilities withheld from a paycheck include:

income taxes and FICA taxes (social security and medicare)

An additional medicare tax on unearned income applies to the unearned income of:

individuals, estates, and trusts

Generally, the _____ is used for individuals who are beyond the first four years of postsecondary education.

lifetime learning credit

The foreign tax credit (FTC) is used to encourage

operating in foreign countries.

Most employee taxpayers have their tax liabilities withheld from their ___ on a regular basis.

paychecks

Self-employed (sole proprietors) do not have employers, so no withholding occurs but income and employment taxes are ____ nonetheless.

prepaid

Self-employed individuals are responsible for ________, in the form of quarterly estimated payments

remitting their own income and employment taxes

The tax credit for elderly or disabled applies to taxpayers 65 and under who are

retired with permanent and total disability and receiving income based on the disability.

Education tax credits cannot be used for tuition that has been paid by with ____ or not reimbursed by another source.

scholarships

The American Opportunity Credit is calculated per ____, and the lifetime learning credit is calculated per ____.

student; taxpayer

Direct offsets of tax owed

tax credits

For a taxpayer receiving a nonrefundable tax credit, he is only able to get the credit up to his ____.

tax liability

If the foreign tax rate is greater than the U.S. tax rate, some foreign income will be

taxed twice.

The payee for employment related expenses cannot be

taxpayer's non-child dependent, spouse, or child under 19 years old.

Both education tax credits are available for expenses for ____, ____, or ____.

taxpayer, spouse, or dependents.

The child tax credit allows tax reliefs for parents with children under _____.

the age of 17

The American Opportunity Credit is available only for students for ____ of postsecondary education.

the first four years

Eligible employment-related expenses for the child and dependent tax care credit include amounts paid for household services and care of a qualifying individual that are incurred to enable

the taxpayer to be employed.

True/False Adoption expense tax credit is a nonrefundable credit.

true

The American Opportunity Credit is available for qualifying: (items)

tuition, fees, books, supplies, and equipment

The Lifetime Learning Credit is available for qualifying: (items)

tuitions and fees

An eligible child for the adoption expense tax credit must be

under 18 at time of adoption OR physically or mentally incapable of caring for him/herself

To be an eligible child for the child and dependent tax credit, the child must be

under age 17, a U.S. citizen, and claimed as a dependent on taxpayer's return

The child and dependent care tax credit is designed to ease the tax effect of

both spouses working outside the home.

To receive either education tax credits, married taxpayers must file

MFJ

For credits for retirement plan contributions, individuals receive a progressive rate credit depending on

AGI and amount of contributions up to $2,000 to certain qualified retirement plans

What are the two education tax credits?

American Opportunity Credit and Lifetime Learning Credit

Quarterly payments of estimated tax (usually for self-employed individuals) are due on what dates every tax year?

January 15th, April 15th, June 15th and September 15th

What happens when a taxpayer hits the AGI phaseout for the child and dependent tax credit?

Lose $50 for every $1,000 of AGI above threshold amount

To qualify for an adoption expense tax credit, a married couple must file

MFJ

True/False If a taxpayer has unearned foreign income, the foreign tax credit must be used instead of the foreign earned income exclusion.

True

True/False Individuals who do not have a qualifying child can still be eligible for the EIC if he/she is between the ages of 25-64 and cannot be claimed as a dependent on another person's return.

True

True/False Room and board are not eligible expenses for any education tax credits.

True

True/False To be eligible for the American Opportunity credit, a student must take at least one-half of the full-time course load for at least one academic term at a qualifying educational institution.

True

Can adoption expense tax credits be carried forward if not completely used in the current tax year?

Yes

How do you calculate child and dependent care tax credits?

You must compare the actual child care expenses, income of lesser paid spouse, and statutory maximum limits and choose the least of these three, then apply the % rate from the table.

What are some examples of child adoption expenses?

adoption fees, attorney fees, court costs, social service review costs, and transportation costs

Taxpayers who are eligible for the EIC may elect to receive an _____

advanced payment

For EIC eligibility requirements, a qualifying child with a permanent or total disability automatically meets the

age test.

What is the AGI phaseout for child and dependent tax credit?

begins when AGI reaches $400,000 for MFJ and $200,000 for other taxpayers.