REG 2 - Tax Computation and Credits Flashcards
Define the work opportunity credit?
- Available to employers who hire employees from a targeted group
- One of the credits among the general business credit
What is the amount of credit that can be taken for the work opportunity credit?
- 40% of first $6,000 of first year’s wages
- 40% of first $3,000 to certain summer youth
Who are the four qualified groups of employees that can be hired for employers to receive work opportunity credit?
- Disabled
- 18 - 24 year old from poor families
- Vietnam veterans from economically disadvantaged areas
- Certain food stamp recipients
What is the maximum amount a taxpayer may claim for the “child” tax credit?
Taxpayers may claim a $1,000 tax credit for each “qualifying child”
Define “qualifying child” as it relates to the child tax credit?
The “CARES” rules on dependency apply except that child must be UNDER the age of 17.
Is the earned income credit a personal tax credit or a refundable credit?
The earned income credit is a refundable tax credit.
Define withholding tax (paycheck credit)?
- Income taxes withheld on a taxpayer’s paycheck are treated as a “credit” against a taxpayer’s tax liability
- When credit exceeds tax liability, a refund is generated to the taxpayer, or credited to next year.
Explain excess FICA (security tax withheld) for one employer, and two or more employers?
- One employer: if excess FICA was withheld from one employer, then no credit is allowed. The employer must give excess back to employer
- Two or more employers: An employee who has had social security tax withheld in an amount greater than maximum can tax credit.
E.g. An employee worked two jobs and both employers withheld FICA in excess.
What is the maximum credit allowed for residential energy credits?
A maximum credit of 30% of qualifying solar electric or solar water heating property installed is allowed.
Define both requirements that need to be met in order to be required to pay estimated taxes?
1) You must pay estimated tax if you have $1,000 or more of tax liability
2) If the tax payer’s withholding is less than 90% of current year’s tax or 100% of last year’s tax (110% of prior year if AGI is over $150,000)
