Question 1

The American opportunity credit is available only for those students who are in their first or second year of postsecondary education.

Accepted Answer

False. The American Opportunity Credit is available for students who are in their first four years of postsecondary education.

Question 2

The American opportunity credit and lifetime learning credit are available to all taxpayers regardless of their income level.

Accepted Answer

The American opportunity credit and lifetime learning credit are not available to all taxpayers regardless of their income level. The availability and amount of these credits are subject to income limits and other eligibility criteria.

Question 3

Parents may claim a child and dependent care credit for expenses incurred in providing for their dependents while the parents work as long as the children are over age 14 and under age 20 at year end.

Accepted Answer

The statement is partially incorrect. The children must be under age 13 at year end to qualify for the child and dependent care credit.

Question 4

All else equal, taxpayers are more likely to be classified as employees rather thanindependent contractors if they are allowed to determine their own working hours and work without frequent oversight.

Accepted Answer

The statement is actually the opposite of what is true. Taxpayers are more likely to be classified as independent contractors rather than employees if they are allowed to determine their own working hours and work without frequent oversight.

Question 5

The child tax credit is subject to phase-out based on the taxpayer's AGI.

Accepted Answer

The child tax credit is subject to phase-out based on the taxpayer's AGI, with the phase-out beginning at a certain income level depending on the taxpayer's filing status.

Question 6

John and Sally pay Janet (Sally's older sister) to watch John and Sally's child Dexterduring the day. Janet cares for Dexter in her home. John and Sally may claim a child and dependent care credit based on the amount they pay Janet to care for Dexter.

Accepted Answer

John and Sally can claim a child and dependent care credit if they pay Janet to care for their child Dexter.

Question 7

Tax credits reduce a taxpayer's taxable income dollar for dollar.

Accepted Answer

Tax credits reduce the amount of tax owed, not taxable income. However, some tax credits are refundable, meaning they can result in a taxpayer receiving a refund even if they had no tax liability to begin with.

Question 8

The child and dependent care credit entitles qualifying taxpayers to a credit equal to the full amount of qualified expenses.

Accepted Answer

The child and dependent care credit allows taxpayers to claim a percentage of their qualified expenses, not the full amount. The percentage ranges from 20% to 35%, depending on the taxpayer's income.

Question 9

Employees are not allowed to deduct FICA taxes they pay.

Accepted Answer

FICA taxes are payroll taxes that are paid by both employees and employers. Employees cannot deduct the FICA taxes they pay from their taxable income.

Question 10

The lifetime learning credit can be used toward the cost of any course of instruction to acquire or improve a taxpayer's job skills, no matter the age of the taxpayer.

Accepted Answer

The lifetime learning credit can be used by taxpayers of any age to offset the cost of education expenses related to job skill improvement or acquisition.

Question 11

Employees are allowed to deduct a portion of the FICA taxes they pay.

Accepted Answer

Employees are not allowed to deduct FICA taxes they pay. FICA taxes, which include Social Security and Medicare taxes, are mandatory payroll taxes that are used to fund these programs. The employer is also required to pay an equal amount of FICA taxes on behalf of the employee.

Question 12

Employees must pay both Social Security tax and Medicare tax on the full amount of their wages no matter the amount of their wages.

Accepted Answer

Employees pay Social Security tax only up to a certain wage limit (called the Social Security Wage Base), but Medicare tax is paid on the full amount of wages without a cap.

Question 13

Parents may claim a child tax credit for a dependent child who is 22 years of age at the end of the year if the child is a full-time student.

Accepted Answer

The answer of Parents may claim a child tax credit...

Question 14

For married couples, the Social Security wage base limitation applies separately to each spouse.

Accepted Answer

Each spouse's earnings are subject to the Social Security wage base limitation, even if they file a joint tax return.

Question 15

Due to the alternative minimum tax rate structure, timing tax planning strategies are not effective under the alternative minimum tax system.

Accepted Answer

The answer of Due to the alternative minimum tax rate...

Question 16

For married couples, the .9 percent additional Medicare tax is based on the couple's combined wages.

Accepted Answer

The .9 percent additional Medicare tax for married couples is based on their combined wages if they file their taxes jointly. If they file separately, the tax is calculated on each spouse's individual wages.

Question 17

Employee status is always better than independent contractor status for a taxpayerbecause the employee is responsible for paying the employee portion of the FICA taxes.

Accepted Answer

This statement is false. Independent contractors are responsible for paying both the employee and employer portion of the FICA taxes, while employees only pay the employee portion. However, being an employee may come with other benefits such as access to employee benefits such as health insurance and 401(k) plans.

Question 18

Self-employed taxpayers are allowed to deduct the full amount of the self-employment taxes they pay.

Accepted Answer

Self-employed taxpayers are allowed to deduct only 50% of the self-employment taxes they pay as an adjustment to income on their tax return, not the full amount.

Question 19

Alton reported net income from his sole proprietorship of $90,000. To determine his self employment tax, he would multiply $90,000 by the self-employment tax rate.

Accepted Answer

The answer of Alton reported net income from his sole...

Question 20

Katlyn reported $300 of net income from her sole proprietorship. She is not required to pay self-employment tax.

Accepted Answer

The answer of Katlyn reported $300 of net income from...

Quiz 8: Individual Income Tax Computation and Tax Credits