Chapter 7 Flashcards
A credit is a
direct reduction in tax liability instead of a deduction from income (below the line)
Credits are used because
Credits are used because
Because of the progressive rate structure of the income tax, a deduction provides ____ benefit to higher-income taxpayers, while a tax credit provides ____ benefit, regardless of the taxpayer’s income level.
greater;equal
A deduction reduces ____ ____ by the amount of the deduction and thus results in a tax _____ equal to the deduction multiplied by the___ ____
taxable income;savings; tax rate
A credit is a ____-___-_____ reduction of the taxpayer’s tax liability.
dollar for dollar
If a taxpayer has a choice between a credit or a deduction of equal amounts, generally the ___ will result in greater tax savings.
credit
The child tax credit permits individual taxpayers to take a tax credit based on the number of their ___ ____.
dependent children
Child tax credit comes in two parts
refundable/non refundable
Most tax credits are limited to the ____ __ ____ ____ ____ that a taxpayer has and thus are “nonrefundable.”
amount of total tax liability
Certain credits allow taxpayers to claim the credit even when the amount of the credit ___ their tax liability – these are known as ______credits since they result in a “refund” of taxes that were never actually paid by the taxpayer.
exceeds ; refundable
Credit per child
2000
credit for qualified dependents
500
child must be
under 17, citizen/alien, a dependent, have a ssn
child tax credit phase outs
400000 Joint AGI/ 200000 S/MFS/HOH AGI= less 50 credit per 1000 over limit no child credit at AGI 440000.
Eugene has a tax liability of $2,200 before any tax credits. Eugene has determined he is eligible for an education credit of $400 and a child tax credit of $2,000. Because his two nonrefundable credits exceed his tax liability, Eugene will take a $400 education credit and his nonrefundable child tax credit will be limited to $____
1800 (2200-400)
The refundable portion of the child tax credit is the amount of child tax credit that was limited by the taxpayer’s ___ ____.
tax liability
Eugene in the previous example, was eligible for a total child tax credit of $2,000; however, he could only take a credit of $1,800 due to the tax liability limitation. The $200 unclaimed child tax credit ___ be refundable
may
If the taxpayer has fewer than three children that are eligible for the child tax credit, the refundable portion of the child tax credit is subject to ___ additional limitations.
two
The first limitation to refundable child tax credits is that the additional child tax credit cannot exceed $____ per child. The second limitation is that the refundable child tax credit cannot exceed __% of the taxpayer’s earned income less $2,500. The ____ of these two amounts will apply.
1400;15%; lower
In 2019, Mike and Laura, married filing jointly taxpayers, have two qualifying children, AGI of $72,000 (all earned income) and tax liability before any credits of $1,043. As a result, their child tax credit of $4,000 is limited to $____. Mike and Laura can claim the refundable portion of child tax credit of $____; the lesser of the unclaimed child tax credit or 15 percent of earned income limited to ____ per child
1043;2800;1400
For taxpayers with three or more qualifying children, the child tax credit amount in excess of tax liability is subject to limitations. The same overall $____limit per child applies. The refundable child tax credit is also limited by the greater of either 15 percent of earned income over $2,500 or the amount of ___ ___ and ____ taxes paid up to the unclaimed child tax credit.
1400; social security; medicare
Molly and Sam are married, file a joint tax return, have five qualifying children, and earned income of $6,000. The children are qualifying children for purposes of the child tax credit, but do not qualify under the earned income tax credit. Molly and Sam had $459 of Social Security and Medicare taxes withheld by their employers. Their pre-credit tax liability is $0. Because their pre-credit tax liability is $0, Molly and Sam are ______ for the child tax credit. The refundable portion of the child tax credit is $___ which starts at $_____ but is first limited to ____ and then further limited to the greater of FICA or EI-2500.
not eligible;525;10000;7000;
No form is required for the ____ child tax credit. It is simply claimed on Line ___ of Form ____
nonrefundable; 13a; 1040
The _____ child tax credit is available to taxpayers whose child tax credit was limited by their tax liability and requires completion of Form ____
refundable ; 8812
AGI Limits for EIC
Earned income limits
