Question 1

The maximum child tax credit under current law is $1,500 per qualifying child.

Accepted Answer

The maximum child tax credit under current law is $2,000 per qualifying child.

Question 2

For purposes of computing the credit for child and dependent care expenses, the qualifying employment-related expenses are limited to an individual's actual or deemed earned income.

Accepted Answer

The qualifying employment-related expenses for the credit for child and dependent care are limited to an individual's actual or deemed earned income.

Question 3

If the cost of a building constructed and placed into service by an eligible small business in the current year includes the cost of a wheelchair ramp, which qualifies for the disabled access credit.

Accepted Answer

The answer of If the cost of a building constructed...

Question 4

The maximum credit for child and dependent care expenses is $2,100 if only one spouse is employed and the other spouse is a full-time student.

Accepted Answer

The maximum credit for child and dependent care expenses is $2,100 if only one spouse is employed OR if both spouses are employed but one is disabled or a full-time student.

Question 5

Child and dependent care expenses include amounts paid for general household services.

Accepted Answer

Child and dependent care expenses can include amounts paid for household services if those services are necessary for the well-being and protection of the qualifying individual, allowing the taxpayer to work or look for work.

Question 6

The education tax credits (i.e., the American Opportunity credit and the lifetime learning credit) are available to help defray the cost of higher education regardless of the income level of the taxpayer.

Accepted Answer

The education tax credits phase out at higher income levels, meaning that taxpayers with incomes above certain thresholds are not eligible for these credits.

Question 7

A taxpayer's earned income credit may be determined by the number of his or her qualifying children.

Accepted Answer

The number of qualifying children is one of the factors that determine the amount of earned income credit a taxpayer can receive.

Question 8

A taxpayer may qualify for the credit for child and dependent care expenses if the taxpayer's dependent is under age 17.

Accepted Answer

The answer of A taxpayer may qualify for the credit...

Question 9

Expenses that are reimbursed by a taxpayer's employer under a dependent care assistance program also can qualify for the credit for child and dependent care expenses.

Accepted Answer

Expenses reimbursed by an employer under a dependent care assistance program do not qualify for the credit for child and dependent care expenses because they are already excluded from the taxpayer's income, preventing double benefit.

Question 10

Qualifying tuition expenses paid from the proceeds of a tax-exempt scholarship do not give rise to an education tax credit.

Accepted Answer

Expenses paid from tax-exempt scholarships cannot be used to claim education tax credits, including the American Opportunity Credit and the Lifetime Learning Credit.

Question 11

The base amount for the Social Security portion (old age, survivors, and disability insurance) is different from that for the Medicare portion of FICA.

Accepted Answer

The base amount for Social Security and Medicare are different. Social Security taxes are based on a percentage of eligible earnings up to a certain limit, while Medicare taxes are based on all eligible earnings with no limit.

Question 12

A small employer incurs $31,500 for consulting fees related to establishing a qualified retirement plan for its 75 employees. As a result, the employer may claim the credit for small employer pension plan startup costs for $750.

Accepted Answer

The credit for small employer pension plan startup costs is designed to encourage small businesses to set up retirement plans for their employees. It allows for a credit of 50% of the cost to set up and administer the plan, up to a maximum of $500 per year, for the first three years. However, the employer can claim an additional $250 for each non-highly compensated employee who is eligible to participate in the plan, up to a maximum of $5,000 per year for the first three years. Given the scenario, the employer's credit could potentially be much higher than $750, depending on the specifics of their situation and the number of non-highly compensated employees eligible.

Question 13

The earned income credit, a form of a negative income tax, is a refundable credit.

Accepted Answer

The earned income credit is a refundable credit, meaning that if the credit is larger than the amount of taxes owed, the taxpayer will receive the difference as a refund.

Question 14

BlueCo incurs $900,000 during the year to construct a facility that will be used exclusively for the care of its employees' pre-school age children during normal working hours. The credit for employer-provided child care available to BlueCo this year is $225,000.

Accepted Answer

The credit for employer-provided child care is 25% of the qualified expenses for employee child care, plus 10% of qualified child care resource and referral expenditures. For $900,000 of expenses, the maximum credit would be $225,000 (25% of $900,000), assuming no additional expenditures for resource and referral. However, the credit is capped at $150,000 per year.

Question 15

Both education tax credits are available for qualified tuition expenses, and in certain instances, also may be available for room and board.

Accepted Answer

Education tax credits like the American Opportunity Tax Credit and the Lifetime Learning Credit can be applied to qualified tuition and related expenses, but they do not cover room and board.

Question 16

The earned income credit is available only if the taxpayer has at least one qualifying child in the household.

Accepted Answer

The earned income credit is available for taxpayers who meet certain income and filing status requirements, regardless of whether they have children. However, the credit amount is generally higher for taxpayers who have one or more qualifying children living with them.

Question 17

Only married taxpayers with children can claim the earned income credit.

Accepted Answer

Both married and unmarried taxpayers with children may be eligible for the earned income credit. The credit is also available for some without children, such as those with disabilities or who are 65 or older.

Question 18

Cardinal Company incurs $800,000 during the year to construct a facility that will be used exclusively for the care of its employees' preschool age children during normal working hours. Assuming that Cardinal claims the credit for employer-provided child care this year, its basis in the newly constructed facility is $640,000.

Accepted Answer

The basis of the newly constructed facility would be reduced by the amount of the credit claimed for employer-provided child care facilities, not by the total cost incurred. The statement does not provide enough information to accurately calculate the adjusted basis without knowing the specific credit amount Cardinal Company claims.

Question 19

The child tax credit is based on the number of the taxpayer's qualifying children under age 17.

Accepted Answer

The child tax credit is indeed based on the number of the taxpayer's qualifying children under age 17.

Question 20

Child care payments to a relative are not eligible for the credit for child and dependent care expenses if the relative is a child (under age 19) of the taxpayer.

Accepted Answer

According to IRS regulations, child care payments made to a relative who is the taxpayer's child (under age 19) are not eligible for the credit for child and dependent care expenses.

Quiz 12: Tax Credits and Payments