Chapter 14 - Questions (Credits) Flashcards
How do deductions lower tax liability
By reducing income
How do credits lower tax liability
After taxable income and tax determined, reduce tax dollar for dollar.
Is the Child and Dependent Care Credit refundable?
No
Is the child and dependent care credit only for child care?
No, for disabled as well
What credit is in place to help allow single parents and two-career couples to find ways to care for children while they work?
Child and Dependent Care Credit
What form is for Child and Dependent Care Expenses
Form 2441
Must a taxpayer be working to qualify for Child and Dependent Care Expenses credit?
Must be working or looking for work.
What are the requirements for the Child and Dependent Care Credit?
Married must file jointly.
Care must have been provided so taxpayer (and spouse if married) could work or look for work.
Taxpayer must have earned income (married, both must have)
Taxpayer and person’s for whom care provided must have lived in same home
Person who provided care must not be someone taxpayer can claim as a dependent. Services provided by taxpayer’s child under age 19 do not qualify even if provider is not a dependent.
Married taxpayers must meet what requirement to claim the Child and Dependent Care Credit even if not filing a joint return?
Taxpayer paid over half the cost of maintaining a household for the year, which was the principal residence of both the taxpayer and a qualifying person for more than half of the year.
During the last six months of the tax year, the taxpayer’s spouse was not a member of the household.
Who are Qualifying persons in terms of child and Dependent Care Credit?
A dependent who is a QC and has not reached their 13th birthday when care was provided.
The taxpayer’s spouse, who is physically or mentally incapable of self-care and lived with the taxpayer for more than half the year.
A disabled person of any age who is physically or mentally incapable of self-care, lived with the taxpayer for more than half 2017, and who the taxpayer claims as a dependent or could claim except AGI, Jt Rturn, or Dependency tests.
If the noncustodial parent is allowed to claim the dependency exemption due to agreement/waiver, are they also eligible for the Child and Dependent Care Credit?
No. The child is the QC of the custodial parent for purposes of this credit.
What are Qualified Expenses for the Child and Dependent Care Credit?
Those incurred for the primary purpose of assuring the well-being and protection of a qualifying person while the taxpayer works or looks for work.
Can expenses for care outside the home qualify for the Child and Dependent Care Credit?
Yes, provided the qualifying person regularly spends at least 8 hours each day in the taxpayer’s home. If the care is provided in a dependent care center, the center must comply with all relevant state and local laws.
What expenses do not qualify for the Child and Dependent Care Credit?
Cost of transportation to and from the child care facility. Overnight camp expenses. Any expense allocable to the education of a child in kindergarten or higher. (Total cost of schooling below kindergarten qualifies only if the cost of schooling cannot be separated from the cost of care).
Do expenses for in-home care qualify for the Child and Dependent Care Credit?
Yes, in-home care of QC, disabled dependent, or disabled spouse qualify. This may include amounts paid for cooking and light housework, as well as actual care.
What expenses do not qualify for in-home care for the Child and Dependent Care Credit?
Chauffeur or gardening services.
What do total qualified expenses include?
Gross wages paid for qualified services, plus the cost of meals and lodging furnished to the employee, plus the employer’s share of the SS, Medicare, FUTA, and any other payroll taxes on the wages.
What must a taxpayer that hires a household worker and pays wages of $2000 or more during the year do?
Pay the employer’s share of the SS and Medicare taxes.
Payments to these do not qualify for the Child and Dependent Care Credit?
A person who either the taxpayer or the spouse may claim as a dependent. The taxpayer’s child who is under age 19. An overnight camp.
How is the Child and Dependent Care Credit determined?
The smallest of:
The amount of qualified expenses
$3000 for one qualifying individual or $6000 for more than 1.
The taxpayer’s earned income for the year
What do you need for Line 1 of the care provider info?
The EIN/SSN. Unless it is a tax-exempt org, then enter Tax-exempt.
What form does the IRS provide to assist taxpayers in obtaining information from child care providers?
Form W-10
Does Earned Income include nontaxable employee compensation in terms of the Child and Dependent Care Credit?
No. Does not include 401k contributions, pensions and annuities, social security and railroad retirement benefits, worker’s compensation, nontaxable scholarships or fellowship grants, nontaxable workfare payments, income of nonresident aliens that is not derived from a US business, or income received for work while an inmate in a penal instution.
Does combat pay get included in earned income for the Child and Dependent Care Credit?
Taxpayers have a choice. They can treat it as earned income if want to. Figure both ways to determine the greater benefit.
How much gets added to earned income if taxpayer or spouse was disabled or a full-time student?
$250 per month.
Is the Child and Dependent Care Credit refundable?
No
If child care is provided or paid by employer, is the value reported as taxable income?
No
What is a section 125 plan
Also called cafeteria plans or flexible spending accounts, these are salary reduction arrangements to provide nontaxable benefits.
For a section 125 plan, if the amounts are not included in taxable income, what must happen?
The taxpayer must reduce the amount of expenses eligible for the credit by the amount excluded from income. Taxpayer must complete part III of the credit form before Part II to account for this.
