Unit 13: Individual Tax Credits
full amount, be able, qualify, tax, 1400, 15, less, 2500, 8812, 2555
ADDITIONAL CHILD TAX CREDIT (ACTC) SPECIAL RULES The Additional Child Tax Credit is available for certain individuals who do not qualify for the ___ ___ of the nonrefundable Child Tax Credit. In order to claim the Additional Child Tax Credit, a taxpayer must ___ ___ to claim the Child Tax Credit, even if he does not ___ for the full amount. Since the Additional Child Tax Credit is refundable, it can produce a refund even if the taxpayer does not owe any ___. The additional child tax credit allows eligible taxpayers to claim up to $___ for each qualifying child. The credit is based on the lesser of: • ___% of the taxpayer's taxable earned income that is over $2,500 or • The amount of unused child tax credit (caused when tax liability is ___ than the allowed Child Tax Credit) Note The "earned income" threshold for claiming the ACTC has decreased from $3,000 to $___, which means that the taxpayer only has to have a minimum of $2,500 in earned income in order to qualify for the refundable portion of the credit. Schedule ___, Child Tax Credit, is used to report both the Child Tax Credit and the refundable Additional Child Tax Credit. A taxpayer cannot claim the refundable Additional Child Tax Credit if he files Form 2555, Foreign Earned Income Exclusion.
14080, 18, mentally, expenses
ADOPTION CREDIT In 2019, a nonrefundable credit of up to $___ per child can be taken for qualified expenses paid to adopt a child. An eligible child is: •Under ___ years of age, or •Physically or ___ disabled, regardless of age. For a special-needs child, the maximum credit amount is allowed even if the taxpayer does not have any adoption ___.
2500, room, board, refundable, 40, refundable, 1000, degree, half, drug, four
AMERICAN OPPORTUNITY TAX CREDIT (AOTC) The American Opportunity Tax Credit (also referred to as the AOTC or AOC) allows taxpayers to claim a maximum credit of up to $___ for each eligible student. The credit covers 100% of the first $2,000 and 25% of the second $2,000 of eligible expenses per student. Qualified expenses include tuition and required fees, books, supplies, equipment, and other required course materials (but not ___ and ___). Unlike other education credits and deductions, the American Opportunity Credit is partially ___. Up to ___% of the credit is ___, which means the taxpayer can receive up to $___ even if no taxes are owed. Requirements for the AOC are as follows: • Degree requirement: The student must be enrolled in a program that leads to a ___, certificate, or other recognized educational credential. • Workload: For at least one academic period of the year, the student must carry at least ___ of the normal full-time workload for his course of study. • No felony ___ conviction: The student must be free of any felony conviction for possessing or distributing a controlled substance. • Four years of postsecondary education: The credit can be claimed only for expenses related to a student's postsecondary education and only for the first ___ years.
13, any, offsets, alternative, 20, 35, 3000, 6000, pretax, deduct, five, qualifying, income, expense, return, provider
CHILD AND DEPENDENT CARE CREDIT The Child and Dependent Care Credit allows a taxpayer a credit for a percentage of child care expenses for children under age ___ and for disabled dependents of ___ age. This is a nonrefundable credit for child care expenses that allow taxpayers to work or to seek work. The credit ___ regular tax and the ___ minimum tax. The credit ranges from ___% to ___% of qualifying expenses, depending on a taxpayer's income. The limit on qualifying expenses is $___ for one child and $___ for two or more children. If a taxpayer receives a reimbursement under a flexible spending account, the amount is treated as being ___, and the taxpayer must ___ the reimbursed amount from his qualified expenses to determine the credit. A taxpayer must pass ___ eligibility tests to qualify for the Credit for Child and Dependent Care Expenses: •___ person test • Earned ___ test •Work-related ___ test • Joint ___ test • ___ identification test
qualifying, 13, disabled, earned, mfs, student, disabled, 250, 500
CHILD AND DEPENDENT CARE TESTS Test #1: ___ Person Test For purposes of the Child and Dependent Care Credit, a "qualifying person" is: • A dependent child under the age of ___ (at the time the care was provided) • A ___ spouse or other disabled dependent of any age Test #2: Earned Income Test Both the taxpayer and his spouse, if married, must have ___ income during the year to qualify for this credit. This generally means both spouses must work, if filing a joint return. The credit is not available to ___ filers. In the event one spouse does not have earned income, for purposes of this test the taxpayer's spouse is treated as having earned income for any month he is: • A full-time ___, or • ___. For any month that a spouse has no actual earned income, but has "deemed earned income" because they were a full-time student or disabled, the amount of deemed earned income by that nonworking spouse is $___ per month if the couple has a prequalifying individual for this credit; or $___ per month if the taxpayer has two or more dependents.
two jobs, refund, 843
CREDIT FOR EXCESS SOCIAL SECURITY AND RRTA TAX WITHHELD This credit is for workers who overpay their tax for Social Security, which usually happens when an employee is working ___ ___, and both employers withhold Social Security tax. Each year, a limit is set as to how much Social Security tax an individual should have withheld from his earnings. If the taxpayer's withholding for Social Security tax exceeds the annual maximum, he can request a ___ of the excess amount. This also applies to overpaid Railroad Retirement taxes. This credit is fully refundable. If a single employer overwithheld too much social security (or RRTA tax), this is an error and the employer should adjust the excess for the taxpayer. If a single employer refuses to refund the over-collection, the taxpayer can file a claim for refund using Form ___, Claim for Refund and Request for Abatement.
one, 17, son, daughter, half, dependent, joint, citizen, half
DEFINITION OF A QUALIFYING CHILD FOR THE CTC To be eligible to claim the Child Tax Credit, the taxpayer must have at least ___ qualifying child. To qualify, the child must meet the following tests: • Age Test: The child must have been younger than ___ on December 31, 2019. • Relationship Test: The child must be the taxpayer's ___, ___ stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister or a descendant of any of them. For example, a qualifying child could include grandchildren, nieces and nephews. Adopted children always qualify as the taxpayer's own child. • Support Test: The child must not provide more than ___ of their own support for the year. • Dependency Test: The child must be a ___ the taxpayer claims on their federal tax return. A noncustodial parent may claim the child tax credit for his or her child if he or she is allowed to claim the child as a dependent and otherwise qualifies to claim the child tax credit. • Joint Return Test: The child cannot file a ___ return for the year unless the only reason they are filing is to claim a refund, and otherwise the child would not have a tax liability. • Citizenship Test: The child must be a U.S. ___, U.S. national or U.S. resident alien with a valid Social Security Number. An ITIN or ATIN is no longer acceptable. Citizens or residents of Mexico and Canada do not qualify. • Residency Test: In most cases, the child must have lived with the taxpayer for more than ___ of the year (over six months). Exceptions exist for temporary absences and children who are born or die within the year.
refundable, under, EIC, social security, earned income, 3600, mfs, dependent, all
EARNED INCOME TAX CREDIT The Earned Income Tax Credit (EITC), also commonly known as the Earned Income Credit (EIC), is a fully ___ federal income tax credit for lower-income people who work and have earned income and adjusted gross income ___ certain thresholds. This credit is claimed on Schedule ___, Earned Income Credit. There are strict rules and income guidelines for the EITC. To claim the EITC, a taxpayer must meet all of the following tests: •Have a ___ ___ number that is valid for employment. Any dependent must also have a valid SSN. •Have ___ ___ from wages, combat pay, or self-employment •Not have investment income that exceeds $__ in 2019 •Not file as ___ •Not be claimed as a ___ by another taxpayer •Be a U.S. citizen or legal resident ___ year
American Opportunity, lifetime, mfs, cannot
EDUCATION CREDITS Two education credits are available based on qualified expenses a taxpayer pays for postsecondary education: •____ ____ Tax Credit (also called the AOC or AOTC) •____ Learning Credit Eligible educational institutions include colleges, universities, vocational schools, and community colleges. Taxpayers can claim payments that are prepaid for an academic period that begins in the first three months of the next calendar year. Taxpayers who file ___ ___ claim any education credit
interest, 8862, two, ten
EITC FRAUD AND PENALTIES If the IRS audits a taxpayer's return and disallows all or part of the EITC, the taxpayer: •Must pay back the amount in error with ___, •May need to file Form ___, Information to Claim Earned Income Credit after Disallowance, •Cannot claim the EITC for the next ___ years if the IRS determines the error is because of reckless or intentional disregard of the rules, or •Cannot claim the EITC for the next ___ years if the IRS determines the error is because of fraud.
two, credit
EXAMPLE: CREDIT FOR EXCESS SS WITHHELD Example: Zachary is a medical doctor. In 2019, he works for ___ different hospitals as an employee. His first employer pays him $108,400 in wages during the year. The second hospital pays him $40,000. His total wages exceed the 2019 Social Security contribution limit of $132,900 because each of his employers is required by law to withhold Social Security tax from the entire amount. When Zachary files his tax return, his overpayment of Social Security tax is calculated by adding up the combined Social Security tax withheld from all his wages. He will receive a ___ for the overwithheld amounts.
2555, 2555
EXAMPLE: CTC/ACTC Example: Liliana is a U.S. citizen who lives and works overseas in Italy. She has one child named Nicole, who is 15 years old. Liliana qualifies for the Foreign Earned Income Exclusion and files Form ___ with her tax return. After calculating all her deductions, her remaining tax liability is $1,300. She is eligible to take the Child Tax Credit for her child Nicole, but her credit is limited to $1,300, the amount of her tax liability. She will not receive the refundable Additional Child Tax Credit, because she filed Form ___ with her return.
child tax credit, credit for other dependents
EXAMPLE: ODC Example: Robert and Susan file a joint return and they both have valid SSNs. Their tax liability is $2,000. They have three qualifying dependents. Amber is their 19 year-old daughter, has an SSN, and meets the qualifying child test. Paulo is their 17-year-old adopted child, has an ATIN, and meets the qualifying child test. Robert's mother, Esther, is 75 years old, has a valid SSN, and meets the qualifying relative test. They are all U.S. residents for tax purposes. Amber, Paulo, and Esther are not qualifying dependents for the ___ ___ ___, but they are all qualifying dependents for the ___ ___ ___ ___.
20, books, 10000, 2000, number, differ, workload, nondegree, levels, unlimited, felony
LIFETIME LEARNING CREDIT The Lifetime Learning Credit is a nonrefundable tax credit of ___% of qualified tuition, fees and any amounts paid directly to the educational institution for required ___, supplies and equipment, up to $___, paid during the tax year. The maximum credit is $___ per tax return, not per student. A family's maximum credit is the same regardless of the ___ of qualified students. The requirements for the Lifetime Learning Credit ___ from those for the AOTC as follows: • No ___ requirement: A student is eligible no matter how few courses he takes. • ___ courses eligible: A student qualifies if he is simply taking a course to acquire or improve job skills. There is no degree requirement. • All ___ of postsecondary education: A student may be an undergraduate, graduate, or professional degree candidate. The courses can also be just for professional development • ___ number of years: There is no limit on the number of years for which the credit can be claimed for each student. • ___ drug convictions permissible: A student can be convicted for a felony drug conviction and still qualify.
do not, 17, elderly, return, 200000, valid
NEW CREDIT FOR OTHER DEPENDENTS (ODC) The $500 Credit for Other Dependents applies to dependents who ___ ___ qualify for the $2,000 Child Tax Credit, such as children who are age ___ and above or dependents who meet the relationship test (such as ___ parents). Taxpayers cannot claim the credit for themselves or a spouse; in other words, the credit is only available for dependents who are listed on the ___. The dependent must be a U.S citizen, U.S. national, or U.S. resident. The AGI phaseout for the Credit for Other Dependents is the same as the phaseout for the Child Tax Credit (to $___ for unmarried taxpayers and $400,000 for joint filers). To claim the Credit for Other Dependents, the dependent must have a ___ identification number (ATIN, ITIN, or SSN) by the due date of the return (including extensions).
do not qualify, tuition, summer, camp, transportation, forfeited
NON-QUALIFYING EXPENSES Examples of child care expenses that ___ ___ ___ for the credit include: •___ costs for children in kindergarten and above •___ school or tutoring programs •The cost of sending a child to an overnight ___ (but day camps generally do qualify) •The cost of ___ not provided by a daycare provider •A ___ deposit to a daycare center (since it is not for care and therefore not a work-related expense)
zero, not, nonrefundable tax credits, foreign, child, child, adoption, opportunity, lifetime, retirement, dependents
NONREFUNDABLE TAX CREDITS A nonrefundable tax credit reduces a taxpayer's liability for the year to ___ but not beyond that, so any remaining credit is ___ refunded to the taxpayer. Among the most common ___ ___ ___ are: •___ Tax Credit (covered later) •Credit for ___ and Dependent Care Expenses •___ Tax Credit •___ Credit •American ___ Tax Credit (also has a refundable component) •___ Learning Credit •___ Savings Contributions Credit •The "Credit for Other ___" or ODC
court, attorney, meals, foreign, surrogate, spouse's, final
QUALIFIED ADOPTION EXPENSES Qualified adoption expenses are directly related to the adoption of a child. These include: • Adoption fees and ___ costs • ___ fees • Travel expenses related to the adoption, including ___ and lodging • Re-adoption expenses to adopt a ___ child Qualified adoption expenses do not include; any illegal adoption expenses, any ___ parenting arrangement, or the adoption of a ___ child. Unsuccessful Adoptions: A taxpayer who has attempted to adopt a child in the U.S. and been unsuccessful is still eligible for the credit. Eligible expenses may include those related to unsuccessful attempts to adopt as well as an adoption attempt that is ultimately successful. However, if the eligible child is from a foreign country, the taxpayer cannot take the credit or exclusion unless the adoption becomes final. A foreign child is defined as a child who was not a citizen or resident of the United States at the time the adoption effort began. The Timing of Payment: For a domestic adoption, qualified expenses paid before the year in which the adoption becomes final may be claimed in the year after the expenses were paid. Once the adoption becomes ___ (or if it is unsuccessful), the taxpayer can claim the expenses in the year paid. For a foreign adoption, expenses paid before or during the year of finality are allowable in that year.
Pell, room, board, medical, insurance, transportation, personal
QUALIFIED EDUCATION EXPENSES Qualified education expenses must be reduced by the amount of any tax-free educational assistance received, such as ___ grants, tax-free portions of scholarships, and employer-provided educational assistance. Education expenses that do not qualify include: •___ and ___, (even if the housing is on-campus and a condition of enrollment) •Any ___ expenses, including student health fees, even if charged by the college •Other ___ costs •___ costs •___, living, or family expenses
19, dependent, divided, work-related, ineligible,
QUALIFYING CHILD CARE Payments for child care will not qualify for the credit if made to a family member who is either: •The taxpayer's own child under age ___ •Any other ___ listed on the taxpayer's tax return Taxpayers may combine costs for multiple dependents. For example, if a taxpayer pays daycare expenses for three qualifying children, the $6,000 limit on qualifying expenses does not need to be ___ equally among them. Example: Nikita is a stay-at-home mom who volunteers several hours a week for a local suicide hotline. Her husband works fulltime as a maintenance worker. They pay a babysitter to stay with their daughter during the hours Nikita volunteers. The couple does not qualify for the credit because the babysitting expense is not ___-___. Since Nikita does not have a job, is not disabled, and is not a full-time student, their child care expenses are ___ for the credit.
wages, earned income, welfare, alimony, pensions, benefits, inmate, rental, exception,
QUALIFYING INCOME FOR EITC Only earned income, such as: ___, tips, combat pay, union strike benefits, and net earnings from self-employment, qualifies for the EITC. For EITC purposes, "___ ___" does not include the following income: • Social Security benefits or ___ payments • ___ or child support • ___ or annuities (Although uncommon, some disability retirement benefits qualify as earned income to claim the Earned Income Tax Credit). • Unemployment ___ • ___ wages, including amounts paid while in work release programs • Income from investments, ___ activities, or other passive sources. Income that is excluded from tax is generally not considered earned income for the EITC. Nontaxable combat pay is an ___. A taxpayer can choose to include their nontaxable combat pay in their earned income if it gives them a better tax result.
zero, refund, exceeds, additional, earned, premium, American, rrta
REFUNDABLE TAX CREDITS A refundable tax credit can reduce a taxpayer's liability to ___ and also generate a ___ to the taxpayer for the amount by which the credit ___ the amount of tax he would otherwise owe. Refundable tax credits include the following: •___ Child Tax Credit •___ Income Tax Credit •___ Tax Credit (related to the Affordable Care Act, covered later) •___ Opportunity Tax Credit (partially refundable) •Credit for excess Social Security and ___ tax withheld
20, 2000, rate, saver's credit
RETIREMENT SAVINGS CONTRIBUTIONS CREDIT The amount of the credit is 50%, ___% or 10% of a taxpayer's retirement plan or IRA contributions up to $___ ($4,000 if married filing jointly), depending on their adjusted gross income. Eligible contributions must be made to an IRA or an employer-sponsored retirement plan. The amount of the credit is the eligible contribution multiplied by the applicable credit ___, which is based on filing status and AGI. Note: On past exams, the IRS has sometimes referred to this credit as the "___ ___" Either term may be used on the EA exam, since both terms are currently used on the IRS website as well as IRS publications.
18, not, dependent, contributions, subtract, foreign, ABLE
RETIREMENT SAVINGS CONTRIBUTIONS CREDIT/ SAVER'S CREDIT : RULES To be eligible for the Retirement Savings Contributions Credit, a taxpayer must be at least ___ years old and must ___ be a full-time student or be claimed as a ___ on another person's return. Most workers who contribute to traditional IRAs already deduct all or part of their ___. The Saver's Credit is in addition to these deductions. In essence, a taxpayer could potentially deduct their traditional IRA, and then also receive the Saver's Credit in the same year. When figuring the credit, a taxpayer generally must ___ the amount of distributions received from his retirement plans, in the two years before the year the credit is claimed; the year the credit is claimed; and the period after the end of the credit year but before the due date, including extensions, for filing the return for the credit year. Also, note that ___ income cannot be included in the taxpayer's adjusted gross income for the purposes of calculating this credit. The Saver's Credit can be taken for contributions to an ___ account if the taxpayer is the designated beneficiary of the ABLE account.
work-related, qualify, jointly, head of household, custodial, child, dependent, 2441
TESTS CONTINUED Test #3: Work-Related Expense Test; Child and dependent care expenses must be "___ ___" to qualify for this credit, meaning a taxpayer must be working (or actively searching for work). Expenses incurred so that a spouse may do volunteer work or take care of personal business, or so that a married couple can go on a "date night" do not ___. Test #4: Joint Return Test; The joint return test specifies that married couples who wish to take the credit must file ___. However, a married taxpayer can be "considered unmarried" for tax purposes if he qualifies for ___ ___ ___ filing status. With divorced or separated taxpayers, only the ___ parent is allowed to claim the credit. Test #5: Provider Identification Test; This test requires that taxpayers provide the name, address, and taxpayer identification number of the person or organization who provided the care for the ___ or ___. If a daycare provider refuses to supply its taxpayer identification information, the taxpayer may still claim the credit. If the provider refuses to provide a tax ID, the taxpayer must report whatever information he has (such as the provider's name and address) and attach a statement to Form ___, Child and Dependent Care Expenses, explaining the provider's refusal to supply the information. There is also an exception for foreign providers, who are not required to have a U.S. tax ID.
2000, 1400, 200000, 400000, SSN, 17, earned income,
THE CHILD TAX CREDIT (CTC) The TCJA made the following changes to the Child Tax Credit and the Additional Child Tax Credit: •The nonrefundable Child Tax Credit increased to $___ per qualifying child •The Additional Child Tax Credit was increased to a maximum of $___ per qualifying child. •The AGI phaseout for the Child Tax Credit also increased to $___ ($___ for joint filers). The child must have a valid ___ to qualify for the $2,000 Child Tax Credit. The child must be under the age of ___. In order to qualify for the Additional Child Tax Credit, the taxpayer must have "___ ___," such as wages or income from self-employment.