Question 1

Which of the following best describes the manner in which self-employed taxpayers may deduct self-employment taxes?

Accepted Answer

Self-employed taxpayers can deduct the employer-equivalent portion of their self-employment tax in determining their adjusted gross income (AGI). This deduction only affects the income tax, not the self-employment tax itself.

Question 2

Which of the following statements regarding FICA taxes is true?

Accepted Answer

If an employee has two different employers during the year and their combined income exceeds the Social Security wage base limit, they may have overpaid FICA taxes. In this case, the employee may be entitled to a tax credit for the excess FICA taxes paid. Option A is incorrect because all employees, regardless of income, are required to pay FICA taxes. Option C is incorrect because both the Social Security tax and Medicare tax have a maximum amount that an employee is required to pay each year. Option D is incorrect because the wage base limit for Social Security taxes is determined by the IRS and is not dependent on the taxpayer's filing status.

Question 3

Hera earned a $175,000 salary in 2019.Her husband, Zeus, earned $100,000 salary in 2019.Hera and Zeus file a joint tax return.How much in FICA taxes will they owe in 2019?

Accepted Answer

FICA taxes consist of Social Security tax (6.2%) and Medicare tax (1.45%) on earnings up to certain limits. In 2019, the Social Security tax was only applied on the first $132,900 of income, while the Medicare tax had no income limit.

For Hera, the Social Security tax would be 6.2% * $132,900 = $8,255.80 and the Medicare tax would be 1.45% * $175,000 = $2,537.50, for a total of $10,793.30.

For Zeus, the Social Security tax would be 6.2% * $100,000 = $6,200 and the Medicare tax would be 1.45% * $100,000 = $1,450, for a total of $7,650.

Together, their FICA taxes would be $10,793.30 + $7,650 = $18,443.30, which is closest to answer choice B, $18,652.

Question 4

The wage base for which of the following taxes is capped?

Accepted Answer

Social Security taxes have a wage base limit, which means there is a maximum amount of earnings that are subject to the Social Security tax in a given year. The other taxes listed do not have a wage base cap; they apply to all income levels or have different structures.

Question 5

Which of the following is not true of the American opportunity credit?

Accepted Answer

This statement is not true. A taxpayer may claim the American Opportunity Credit even if they did not pay for their dependent's qualifying educational expenses. The dependent can even claim the credit if they paid for their own expenses.

Question 6

Rhianna and Jay are married filing jointly in 2019.They have six children under age 17 for whom they may claim the child tax credit.Their AGI was $419,400.What amount of child tax credit may they claim on their 2019 tax return?

Accepted Answer

The answer of Rhianna and Jay are married filing jointly...

Question 7

Which of the following statements concerning tax credits is true?

Accepted Answer

Tax credits directly reduce a taxpayer's tax liability, while tax deductions only reduce taxable income. Therefore, tax credits are generally more beneficial than tax deductions. Additionally, tax credits are not affected by a taxpayer's marginal tax rate. However, refundable tax credits can exceed a taxpayer's gross tax liability and result in a payment to the taxpayer.

Question 8

Which of the following statements regarding the child and dependent care credit is false?

Accepted Answer

The child and dependent care credit is designed to phase out at higher income levels but does not completely eliminate eligibility based on high income. Instead, the credit amount decreases as income increases, but taxpayers are not rendered entirely ineligible solely due to high income.

Question 9

Which of the following statements concerning a comparison between employees and independent contractors is most accurate?

Accepted Answer

Independent contractors are not eligible for nontaxable fringe benefits from employers, while employees are. Employees also have federal income tax withheld from their compensation, while independent contractors do not. Employers must withhold FICA taxes from employees' compensation but not from independent contractors. Both employees and independent contractors may deduct eligible business expenses, but employees do so as a miscellaneous itemized deduction while independent contractors deduct such expenses as a business expense deduction.

Question 10

Kaelyn's mother, Judy, looks after Kaelyn's four-year-old twins so Kaelyn can go to work (she drops off and picks up the twins from Judy's home every day).Since Judy is a relative, Kaelyn made sure, for tax purposes, to pay her mother the going rate for child care ($6,300 for the year).What is the amount of Kaelyn's child and dependent care credit if her AGI for the year was $36,000? (Exhibit 8-9)

Accepted Answer

The child and dependent care credit for Kaelyn, based on her AGI of $36,000 and the fact that she paid $6,300 for the care of her twins, would be calculated as a percentage of her expenses that qualify for the credit. Given the information and typical tax guidelines, the maximum expense allowed for two or more dependents is $6,000, and for her income level, the applicable percentage is 24%. Therefore, 24% of $6,000 equals $1,440.

Question 11

Which of the following statements regarding the child and dependent care credit is true?

Accepted Answer

The answer of Which of the following statements regarding the...

Question 12

Baker is single and earned $225,000 of salary as an employee in 2019.How much should his employer have withheld from his paycheck for FICA taxes? (Round your answer to the nearest whole dollar amount.)

Accepted Answer

FICA taxes consist of Social Security and Medicare taxes. For 2019, the Social Security tax rate was 6.2% on earnings up to $132,900, and the Medicare tax rate was 1.45% on all earnings, with an additional 0.9% Medicare tax on earnings over $200,000 for single filers. Baker's salary of $225,000 means he would pay 6.2% on the first $132,900 for Social Security ($8,239.80) and 1.45% on the entire $225,000 for Medicare ($3,262.50), plus an additional 0.9% on the $25,000 over $200,000 ($225). Adding these amounts gives us $11,727.30, which rounds to $11,727.

Question 13

Quantitatively, what is the relationship between the AGI phase-out thresholds for the child tax credit?

Accepted Answer

The AGI phase-out thresholds for the child tax credit are higher for taxpayers filing as Head of Household or Single than for those filing as Married Filing Separately. However, the thresholds are highest for taxpayers filing as Married Filing Jointly. Therefore, the correct relationship is Head of Household/Single = Married Filing Separately < Married Filing Jointly. Choice D is the only option that reflects this relationship.

Question 14

Which of the following statements regarding the child tax credit is false?

Accepted Answer

The child tax credit is for children under the age of 17 at the end of the year, not 15.

Question 15

For taxpayers who receive both salary as an employee and self-employment income as an independent contractor in the same year, which of the following statements regarding FICA and self-employment taxes is most accurate?

Accepted Answer

The Social Security limit applies to the combined total of an individual's salary and self-employment income. Salary is considered first when applying the limit, and then any self-employment income is considered up to the cap.

Question 16

Which of the following is not one of the general tax credit categories?

Accepted Answer

The three general tax credit categories are nonrefundable personal, refundable personal, and business. Refundable business is not one of the general tax credit categories.

Question 17

Which of the following statements best describes the deductions independent contractors may claim for valid business expenses?

Accepted Answer

Independent contractors can claim deductions for valid business expenses as for AGI (above-the-line) deductions, which are not limited by their business income. These deductions reduce the contractor's gross income before adjusted gross income (AGI) is calculated.

Question 18

The amount of expenditures eligible for the child and dependent care credit is the least of three amounts.Which of the following is not one of those amounts?

Accepted Answer

The three amounts that are compared to determine the eligible amount for the child and dependent care credit are: 
A) The total amount of child and dependent care expenditures for the year 
B) $3,000 for one qualifying person or $6,000 for two or more qualifying persons 
D) The taxpayer's earned income for the year

C) The dependent's earned income for the year is not compared to determine the eligible amount for the credit.

Question 19

Trudy is Jocelyn's friend.Trudy looks after Jocelyn's four-year-old son during the day so Jocelyn can go to work.During the year, Jocelyn paid Trudy $4,000 to care for her son.What is the amount of Jocelyn's child and dependent care credit if her AGI for the year was $30,000? (Exhibit 8-9)

Accepted Answer

The child and dependent care credit for someone with an AGI of $30,000 and expenses of $4,000 would be $810. This is because the maximum expense allowed for one qualifying person is $3,000, and for someone with an AGI of $30,000, the applicable percentage for the credit is 27% (3,000 x 27% = 810).

Question 20

Which of the following suggests that a working taxpayer is an independent contractor rather than an employee?

Accepted Answer

All of these suggest independent contractor status. Independent contractors generally have more flexibility and control over their work than employees, which includes working for multiple clients, setting their own schedules, working off-site, and bearing the risk of business losses. Employees are typically limited to working for one employer on a set schedule, and the employer bears the risk of business losses.

Quiz 8: Individual Income Tax Computation and Tax Credits