Question 1

The additional Medicare taxes assessed on high-income individuals carry differing tax rates depending on the tax base.

Accepted Answer

The additional Medicare taxes assessed on high-income individuals carry a tax rate of 0.9% on earned income above $200,000 for individuals or $250,000 for married couples filing jointly, and a tax rate of 3.8% on net investment income above these same thresholds. Therefore, the tax rates differ depending on the tax base.

Question 2

Only self-employed individuals are required to make estimated tax payments.

Accepted Answer

Both self-employed individuals and certain other individuals, such as those with significant investment income, are required to make estimated tax payments to the IRS throughout the year to avoid penalties for underpayment of taxes.

Question 3

If an employee holds two jobs during the year, an overwithholding of FICA tax always will result.

Accepted Answer

An overwithholding of FICA tax may occur if the combined income from both jobs exceeds the Social Security wage base limit, but it is not guaranteed to happen in every case.

Question 4

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 (AOTC) and the Lifetime Learning Credit (LLC) are available for qualified tuition and related expenses, but they do not cover room and board.

Question 5

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

Question 6

John owns and operates a real estate agency as a sole proprietor. On a full-time basis, he employs his 17-year old daughter as a receptionist and his 22-year old son as a bookkeeper. Both children are subject to FICA withholding.

Accepted Answer

The answer of John owns and operates a real estate...

Question 7

Which of the following best describes the treatment applicable to unused business credits?

Accepted Answer

Unused business credits are typically carried back one year and then carried forward for 20 years, allowing businesses to offset past or future tax liabilities.

Question 8

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 taxpayers with incomes above certain thresholds are not eligible for these credits.

Question 9

In the event that overwithholding of FICA tax occurs because the taxpayer has more than one employer, the excess amount should be claimed as a credit on the Federal income tax return of the employee.

Accepted Answer

If excess FICA tax is withheld due to having multiple employers, the employee can claim a credit for the excess amount on their federal income tax return.

Question 10

Roger is considering making a $6,000 investment in a venture that its promoter promises will generate immediate tax benefits for him. Roger, who does not anticipate itemizing his deductions, is in the 30% marginal income tax bracket. If the investment is of a type that produces a tax credit of 40% of the amount of the expenditure, by how much will Roger's tax liability decline because of the investment?

Accepted Answer

The tax credit amount would be 40% of $6,000, which is $2,400. This means that Roger's tax liability would decrease by $2,400. Therefore, the correct answer is D.

Question 11

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 12

Refundable tax credits include the:

Accepted Answer

The earned income credit is the only refundable tax credit listed among the options. This credit is designed to benefit low-income working individuals and families. If the credit exceeds the amount of taxes owed, the excess amount can be refunded to the taxpayer.

Question 13

Certain high-income individuals are subject to three additional Medicare taxes-on wages, unearned income, and tax credits claimed.

Accepted Answer

High-income individuals are subject to an additional Medicare tax on wages and unearned income, but not on tax credits claimed. The additional taxes are specifically a 0.9% Medicare tax on wages exceeding certain thresholds and a 3.8% Net Investment Income Tax (NIIT) on unearned income for high earners.

Question 14

An employee with outside income may be able to avoid the penalty for underpayment of estimated tax by having his employer increase income tax withholdings.

Accepted Answer

An employee with outside income can avoid the penalty for underpayment of estimated tax by having his employer increase income tax withholdings. This is because the additional tax withheld by the employer counts towards the employee's total tax payments, which reduces the amount of estimated tax that the employee is required to pay.

Question 15

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

Accepted Answer

This statement is true. Tax-exempt scholarships or grants cannot be used to claim education tax credits because the funds are already tax-free. However, if any portion of the scholarship or grant is taxable, that portion may be used to claim the education tax credits.

Question 16

The components of the general business credit include all of the following except:

Accepted Answer

All of the listed options are components of the general business credit, so none of them are excluded.

Question 17

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 (OASDI) is currently $142,800 (as of 2021), while there is no limit on wages subject to Medicare taxes. Therefore, the base amount for the two portions of FICA are different.

Question 18

Ahmad is considering making a $10,000 investment in a venture which its promoter promises will generate immediate tax benefits for him. Ahmad, who normally itemizes his deductions, is in the 28% marginal tax bracket. If the investment is of a type where the taxpayer may claim either a tax credit of 25% of the amount of the expenditure or an itemized deduction for the amount of the investment, what treatment normally would be most beneficial to Ahmad and by how much will Ahmad's tax liability decline because of the investment?

Accepted Answer

The answer of Ahmad is considering making a $10,000 investment...

Question 19

Juan refuses to give the bank where he maintains a savings account his Social Security number. Juan is subject to backup withholding for the interest earned on the savings account.

Accepted Answer

The bank is required to report the interest earned on Juan's savings account to the IRS, and if he refuses to provide his Social Security number, the bank must withhold a percentage of the interest as backup withholding.

Question 20

Molly has generated general business credits over the years that have not been utilized. The amounts generated and not utilized follow: 
In the current year, 2018, her business generates an additional $15,000 general business credit. In 2018, based on her tax liability before credits, she can utilize a general business credit of up to $20,000. After utilizing the carryforwards and the current year credits, how much of the general business credit generated in 2018 is available for future years?

Accepted Answer

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Quiz 12: Tax Credits and Payments