Question 1

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

Accepted Answer

Medicare tax for married couples is based on their combined wages, according to the IRS.

Question 2

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

Accepted Answer

Each spouse is treated as an individual for the purposes of determining their Social Security taxes and benefits, so the wage base limitation applies to each spouse separately.

Question 3

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 for any course of instruction to acquire or improve job skills, regardless of the age of the taxpayer.

Question 4

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.Each dependent must be under the age of 17 at year-end.

Accepted Answer

The first sentence is true, but the second sentence is false. The child tax credit can be claimed for dependent children who are under the age of 17 at year-end, but there is no age limit for full-time student status.

Question 5

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

Accepted Answer

The American Opportunity Credit is available for the first four years of postsecondary education, not just the first or second year.

Question 6

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 7

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 8

Employees are not allowed to deduct FICA taxes they pay.

Accepted Answer

FICA taxes, which include Social Security and Medicare taxes, are employer and employee taxes that are paid together. Employees cannot deduct their portion of FICA taxes on their personal tax returns.

Question 9

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

Accepted Answer

This statement is false because as an independent contractor, the taxpayer is responsible for paying both the employer and employee portions of the self-employment tax, which includes Social Security and Medicare taxes. As an employee, the employer is responsible for paying the employer portion of FICA taxes.

Question 10

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

Accepted Answer

The child tax credit is subject to a phase-out based on the taxpayer's AGI. The phase-out begins at $200,000 for single filers and $400,000 for married filing jointly.

Question 11

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

Accepted Answer

All else equal, taxpayers are more likely to be classified as independent contractors if they are allowed to determine their own working hours and work without frequent oversight. This is because having control over their work schedule and methods is a key factor in the determination of independent contractor status.

Question 12

Employees must pay both Social Security tax and Medicare tax on all of their wages no matter the amount of their wages.The Social Security wage base is limited;the Medicare wage base is not.

Accepted Answer

The answer of Employees must pay both Social Security tax...

Question 13

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 credit equal to a percentage of their qualified expenses, not the full amount. The percentage varies based on the taxpayer's income.

Question 14

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

Accepted Answer

Employees are not allowed to deduct a portion of the FICA taxes they pay. FICA taxes are mandatory federal payroll taxes that fund Social Security and Medicare programs, and they are not deductible on personal income tax returns.

Question 15

John and Sally pay Janet (Sally's older sister) to watch John and Sally's child Dexter during 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 someone to care for their child while they work or look for work. The fact that the caregiver is a family member does not disqualify them from claiming the credit.

Question 16

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 17

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 have income limits for eligibility. Taxpayers with higher incomes may not be able to claim these credits or may only qualify for a reduced credit amount.

Question 18

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

Accepted Answer

Tax credits reduce tax liability dollar for dollar, but they do not reduce taxable income.

Question 19

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.The dependent must be under the age of 13.

Accepted Answer

The statement is partially incorrect. The dependent must be under the age of 13 to qualify for the child and dependent care credit. The age limit for the child must be met as well. The child must be under age 13, or must also be physically or mentally incapable of caring for themselves.

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 7: Individual Income Tax Computation and Tax Credits