REG 2 - Tax Computations and Credits Flashcards
Nonrefundable personal tax credits
Reduce taxes, but no refund
- Child and dependent care credit
- Elderly and permanently disabled credit
- Education credits
- Lifetime learning
- American opportunity (60% non refundable)
- Retirement savings contribution credit
- Foreign tax credit
- General business credit
- Adoption credit
Refundable credits
Reduce taxes and can get a refund
- Child tax credit (fully refundable in 2021, refund limited in other years)
- Earned income credit
- Federal income tax withheld (Form W-2)
- Excess Social Security tax paid
- American opportunity credit (40% refundable)
Child and Dependent Care Credit
20% to 50% of eligible expenses to care for qualifying persons. The max allowable expenses are 8,000 for one and 16,000 for two or more.
Qualifying persons:
- A dependent who is under age 13
- A disabled dependent who in unable to take care of themselves and meets the 50% support test
- A disabled spouse
Eligible Expenses:
- Babysitter
- Nursery school
- Day care
- NOT elementary school
Elderly and/or Permanently Disabled Credit
Available to individuals:
1) 65 or older
2) under 65 and retired due to permanent disability
Elderly and/or Permanently Disabled Credit calculation
Single: Base amount: 5,000 (Social Security): (ALL) (50% of Excess AGI): (50% over 7,500) =Balance x15% =Credit
Joint: Base amount: 7,500 (Social Security): (ALL) (50% of Excess AGI): (50% over 10,000) =Balance x15% =Credit
American Opportunity Tax Credit (AOTC)
Available against federal income taxes for qualified tuition, fees, book paid for a student’s first four year of college.
- Max credit is 2,500 per student (100% of first 2,000 and 25% of next 2,000)
- 40% is refundable, meaning up to 1,000 can be refunded
Lifetime Learning Credit (LLC)
Available for an unlimited number of years.
- Credit is equal to 20% of qualified expenses up to 10,000 = 2,000
- Per taxpayer basis rather than per student
- Parents can claim AOTC on one child and LLC on another, can’t double dip one child
Coverdell Education Savings Accounts
A separate education savings account may be set up to pay the qualified education expenses of a designated beneficiary.
- Contributions are nondeductible, max contribution per beneficiary is 2,000 annually
- Beneficiary is any child under 18, there is no limit to the number of beneficiaries (each has a separate account)
- Earnings accumulate tax free, distributions are tax free as long as used for qualified education expenses of the designated beneficiary
- Must be distributed by when the beneficiary reaches 30 years old. Can be rolled over tax free to another family member with no penalty
- No double dipping on educational expenses with AOTC and LLC
Adoption Credit
Max credit is the amount of qualified adoption expenses up to $14,440. Can be carried forward for up to five years
Foreign Tax Credit
Allowable Credit: lesser of 1) Foreign taxes paid or 2) Taxable income from all foreign operations / Total taxable worldwide income x US tax =Foreign tax credit limit
*Any excess can be carried back one year and forward 10 years
General Business Credit
Maximum credit permitted:
100% of 0-25,000
75% of excess over 25,000
*Any excess can be carried back one year and forward 20 years
“Child” Tax Credit
2,000 tax credit for each qualifying child
3,000 ages 6-17
3,600 ages under 6
*CARES rules apply to determining qualifying children
**fully refundable
Earned Income Credit
Refundable. Low AGI phase amounts. Cannot file married filling separately
Taxes Withheld (W-2)
Refund or credit to next year
Excess FICA (SS tax withheld)
- Two or more employers, claim the excess as a credit against income tax
- One employer (mistake), the employer must refund the excess to the employee
