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Terms Flashcards

1
Q

In terms of dependency, what 5 “tests” are used to determine a qualifying child?

A

Relationship Test, Age Test, Residency Test, Support Test and Tiebreaker Test.

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2
Q

What are the rules for the relationship test for a dependent child?

A

The qualifying child must be related to the taxpayer by blood, marriage, or legal adoption. This includes children, foster children, siblings, or any descendants of the above.

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3
Q

What are the rules for the age test for a dependent child?

A

At the end of the tax year, the child must be either: under the age of 19 or under the age of 24 and a full-time student. A dependent may also be permanently and totally disabled at any time during the year regardless of age.

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4
Q

What are some additional things to keep in mind regarding the age test for a dependent child?

A

The dependent child must be younger than the taxpayer unless disabled. For couples filing jointly, the dependent child must be younger than at least one of the taxpayers.

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5
Q

What are the rules for the residency test for a dependent child?

A

The child must live with the taxpayer for more than half of the tax year.

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6
Q

What constitutes a “temporary absence” as it relates to the residency test for a dependent child?

A

Illness, college, vacation, military service, institutionalization and incarceration.

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7
Q

What are the rules for the support test for a dependent child?

A

A child must not pay more than half of his/her own support. Support means income actually used for living expenses (SS counts, scholarships do not).

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8
Q

What are the 4 rules for a qualifying relative?

A

Not a Qualifying Child Test, Member of Household/Relationship Test, Gross Income Test, Support Test.

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9
Q

What are the rules for the “Not a Qualifying Child” Test for a qualifying relative?

A

A taxpayer cannot claim an individual who can be claimed as a dependent on another tax return.

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10
Q

What are the rules for the “Member of Household/Relationship” test?

A

A dependent NOT related the the taxpayer must have lived with the taxpayer for the entire tax year to meet this test. A family member such as a child, sibling, parent (no foster parents), niece/nephew or in-laws DO NOT have to live with the taxpayer.

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11
Q

Are there any special rules for cousins regarding the Member of Household/Relationship test?

A

Cousins are considered unrelated dependents and must live with the taxpayer for the entire tax year and meet the Gross Income test to be claimed as a qualifying relative. A cousin cannot be claimed as a qualifying child.

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12
Q

Can a housekeeper or other household worker be claimed a qualifying relative?

A

No

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13
Q

Are there any special rules regarding divorce or death and the Relationship test for qualifying relatives?

A

Any relationship established my marriage does not end as a result of divorce or death.

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14
Q

What are the rules for the Gross Income test?

A

A qualifying relative cannot earn more than the deemed exception amount. For 2020, the deemed exception is $4,300.

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15
Q

What are the rules for the Support test regarding qualifying relatives?

A

To claim an individual as a qualifying relative the taxpayer must provide more than half of the dependent’s total support during the year.

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16
Q

What items are deemed as “support” regarding the Support test?

A

Food, clothing, shelter, education, medical, dental care, Wh

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17
Q

What are the special rules for divorced , separated parents or parents who live apart?

A

A child may be treated as the qualifying child of the noncustodial parent

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18
Q

What are the 3 tests to determine if a taxpayer can claim a dependent?

A

Dependent Taxpayer test, Joint Return test, and the Citizenship/Residency test.

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19
Q

What are the rules for the Dependent Taxpayer test?

A

A taxpayer who is claimed as a dependent cannot claim a dependent themselves. Additionally, only one person can claim a dependent on his/her tax return.

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20
Q

What are the rules for the Joint Return test?

A

If a married person files a joint return, that individual cannot be claimed as a dependent by another taxpayer UNLESS the return is only filed to claim a refund and there is NO tax liability jointly or if filed separately.

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21
Q

What are the rules for the Citizenship/Residency test?

A

A dependent must be a citizen or resident of the US, Canada or Mexico. If a US citizen, resident or national legally adopts a child who is not a US citizen, resident or national, the child must live with the taxpayer the whole year to be claimed as a dependent.

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22
Q

What are the rules for a Multiple Support Agreement and Multiple Support Declaration?

A
  1. Family members must pay more than half of the person’s total support.
  2. No one member may pay more than half individually.
  3. The taxpayer that claims the dependent must provide more than 10% of the person’s support.
  4. Only one family member may claim the dependent in a single tax year.
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23
Q

What is the return filing date for Individual Income Tax and FBARs?

A

April 15th 2021; Extension October 15th 2021

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24
Q

What is the Standard Deduction Amount for Single or MFS?

A

$12,400

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25
Q

What is the Standard Deduction Amount for HOH?

A

$18,650

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26
Q

What is the Standard Deduction Amount for MFJ or Qualifying Widow(er) with a Dependent?

A

$24,800

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27
Q

What is the additional Standard Deduction Amount for age 65 and older/Blindness?

A

MFJ or QW: $1,300

Single or HOH: $1,650

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28
Q

What are the Tax Bracket percentages for 2020?

A

10%, 12%, 22%, 24%, 32%, and 37%

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29
Q

What qualifies as gross income?

A

Wages, salaries, commissions, tips, self-employment income, interest, dividends, capital gains, taxable fringe benefits and stock options.

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30
Q

What is the definition of gross income?

A

All income a taxpayer receives in the form of money, goods, property and services that are not exempt from tax.

31
Q

How is Adjusted Gross Income calculated?

A

Adjusted Gross Income (AGI) is calculated by subtracting certain specific deductions and adjustments from gross income.

32
Q

What are some common “Above the Line” deductions for AGI?

A

IRA contributions, certain expenses for self-employed individuals, deductible alimony payments and moving expenses.

33
Q

How is taxable income calculated?

A

Gross Income - Above the Line Deductions - The greater of Itemized Deductions or Standard Deduction = Taxable Income.

34
Q

What is earned income?

A

Earned income is derived from services performed and is subject to FICA taxes (Social Security and Medicare taxes).

35
Q

What are some examples of earned income?

A

Wages, salaries, tips, professional fees, or self-employment income.

36
Q

What are some examples of unearned income?

A

Interest, dividends, retirement income, taxable alimony, and disability benefits.

37
Q

On what schedule of Form 1040 do self employed individuals report their income?

A

Schedule C, Income from Profit and Loss from Business

38
Q

On what schedule of Form 1040 do self employed farmers or fisherman report their income?

A

Schedule F, Income from Profit and Loss from Farming

39
Q

What is reported on Schedule K-1 of Form 1065 U.S. Return of Partnership Income?

A

The distributive share of trade or business income allocated by a partnership to its general partners or by a LLC to its members.

40
Q

What is reported on Form 1099-NEC?

A

Income in excess of $599 received by independent contractors from businesses. This income is reported on Form 1040, scheduled C.

41
Q

What does FICA stand for?

A

Federal Insurance Contributions Act

42
Q

What is FICA?

A

FICA includes two separate taxes; Social Security Tax and Medicare Tax. Its combined tax rate is 15.3% and applies to up to $137,700 of earned income. If the taxpayer’s combined earned income exceed $137,700, they taxpayer will be responsible for Medicare taxation only at the rate of 2.9%.

43
Q

What is the tax rate for Social Security Tax?

A

12.4% (6.2% for the employer and 6.2% for the employee).

44
Q

What is FICA?

A

FICA includes two separate taxes; Social Security Tax (also known as OASDI) and Medicare Tax.

45
Q

What is the total tax rate for Social Security Tax?

A

12.4% (6.2% for the employer and 6.2% for the employee).

46
Q

What is the total tax rate for Medicare Tax?

A

2.9% (1.45% for the employer and 1.45% for the employee)

47
Q

Is there a cap on Medicare Tax?

A

There is no cap on Medicare Tax. Certain high-earners may have to pay an additional Medicare Tax of .09% if income is above certain thresholds.

48
Q

Is there a cap on Social Security Tax.

A

The maximum taxable amount for Social Security tax is $137,000. The employee will be taxed 6.2% on all combined earned income up to this amount. There is no cap on Medicare Tax.

49
Q

What is the combined FICA tax rate?

A

15.3%

50
Q

When is the “Credit for Excess Social Security and RRTA Tax Withheld”

A

When a taxpayer is taxed on combined earned income in excess of $137,700, the taxpayer can claim against his income tax on his/her individual tax return.

51
Q

Where is Self-Employment Tax calculated?

A

IRS Schedule SE, Self-Employment Tax

52
Q

How are workers classified for IRS purposes?

A

Workers are classified as employees or as independent contractors. Employees receive Form W-2, whereas independent contractors receive Form 1099-NEC (if their income was $600 or greater).

53
Q

When is Form SS-8, Determination of Worker Status for Federal Employment Taxes and Income Tax Withholding filed?

A

Form SS-8 is filed when a worker receives a 1099-NEC and he/or she believes that he is an employee and should have received Form W-2.

54
Q

When is Form 8919, Uncollected Social Security and Medicare Taxes on Wages filed?

A

When the IRS determines that a worker is an employee and not a contractor, the individual will file Form 8919 along with his/her tax return.

55
Q

What type of income is classified as “Supplemental Wages”?

A

Vacation pay, sick pay, commissions, bonuses, prizes, severance pay, holiday pay, back pay, and payment for nondeductible moving expenses are classified as Supplemental Wages and taxable just as regular pay.

56
Q

Are garnished wages reported as taxable income?

A

Yes

57
Q

How are property or services received “in lieu” of wages treated by the IRS?

A

The fair market value of property received “in lieu” should be reported as taxable income on the employee’s return. Property should be reported as income when the employee has unrestricted use of said property. Portions of a grant or scholarship that are compensation for services is taxable as wages.

58
Q

Is tip income reportable as wages?

A

Tips of $20 or more per month must be reported to the employer. An employee that receives less than $20 per month in tips does not have to report the income to their employer. Tips less than $20 per month are not subject to Social Security or Medicare Tax, BUT is still subject to Federal Income Tax.

59
Q

Where are tips reported?

A

Tips reported to an employer will be included on Form W-2. Employees will complete Form 4137, Social Security and Medicare Tax on Unreported Tip Income to report tips that have not been reported to their employer. Self-employed individuals must report their tips on Schedule C of Form 1040.

60
Q

How are noncash tips reported?

A

Noncash tips must be reported as income at the fair market value. Noncash tips do not have to be reported to the individual’s employer.

61
Q

True or false? Some employee-offered fringe benefits are included on the W-2 as reportable income.

A

True. Examples include off-site athletic facilities and health clubs, concert and athletic event tickets, employer provided health insurance over $50,000, cash benefits or benefits in the form of a credit card or gift card, transportation benefits, employer-provided vehicles if used for personal purposes.

62
Q

What are some examples of non-taxable fringe benefits?

A

Accident or health plan coverage are examples of fringe benefits that are non-taxable. Employer contributions are non-taxable, and employee contributions are excluded from taxable income. Any distributions received by the employee are taxable. Please note that employee contributions are subject to Social Security and Medicare tax.

63
Q

What is a cafeteria plan?

A

A cafeteria plan allows employees to receive certain benefits on a pre-tax basis. Contributions are deducted based on a salary reduction agreement, are not treated as taxable wages and not subject to employment tax. An example of a cafeteria plan is a FSA.

64
Q

How does a FSA work?

A

An FSA reimburses employees for expenses incurred for certain qualified benefits. such as health care and daycare expenses. Contributions for Health Care FSA are capped at $2,750. The cap for Dependent FSA is $5,000. There is a 2 and a half grace period after year end to use FSA funds.

65
Q

What happens if an employee “over-contributes” to a FSA?

A

The employee will be subject to pay income taxes and a 6% excise tax on any excess contributions and their related earnings for each tax year the overpayment remains in the FSA account. To avoid the excise tax, the employee must remove the excess contributions and their earnings by the filing deadline (April 15).

66
Q

What is the contribution limit under a qualified Adoption Assistance Program?

A

$14,300

67
Q

What services can be paid from a qualified Dependent Care FSA?

A

Before or after school program and adult daycare for disabled dependents are two examples. The contributions are not subject to payroll taxes or income tax.

68
Q

Are there special taxation rules for Highly Compensated Employees?

A

If a cafeteria plan unfairly favors Highly Compensated Employees, the value of those benefits may become taxable.

69
Q

Who qualifies as a Highly Compensated Employee?

A

A company officer, a shareholder with 5% voting power, an employee who is highly compensated based on fact and circumstance, a spouse or dependent of an officer or shareholder described above.

70
Q

What does the process of “familial attribution” say about High Compensated Employees?

A

An employee who is a spouse, child, grandparent, or parent of someone who is a 5% or greater owner of the business is automatically considered an
“owner” under “familial attribution” rules. HCEs hired in the middle of the year will obtain HCE status the following tax year.

71
Q

What is a “Key Employee”?

A

A company officer making more than $185,000 annually, an employee with 5% ownership in the business or 1% ownership with a salary of $180,000 annually.

72
Q

Is employer provided educational assistance taxable?

A

Up to $5,250 can be excluded per year per employee. Assistance greater than the limit is taxable as income for the employee. The educational assistance must be used for the cost of tuition, fees, books, supplies and equipment for undergraduate or graduate work.

73
Q

What special rules apply to qualified tuition reduction?

A

Employers can exclude the value of a qualified undergraduate tuition reduction to any employee, their spouse or child if used at an eligible educational institution. Graduate tuition is eligible if the employee performs teaching or research at the eligible institution.

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