1
Q
What is a tax credit?
A
It directly reduces a taxpayer’s liability on a dollar-for-dollar basis.
Tax credits are more valuable than deductions, as they reduce the amount of tax owed, not just taxable income.
2
Q
What is a nonrefundable tax credit?
A
It reduces a taxpayer’s liability to zero but does not provide a refund if the credit exceeds the tax owed.
Examples include the Child and Dependent Care Credit, Adoption Credit, and Lifetime Learning Credit.
3
Q
What is a refundable tax credit?
A
It can reduce a taxpayer’s liability to zero and generate a refund if the credit exceeds the tax owed.
Examples include the Additional Child Tax Credit, Earned Income Tax Credit, AOTC, and Premium Tax Credit.
4
Q
What must tax preparers complete when claiming ODC, EITC, CTC/ACTC, or AOTC and HOH filing status?
A
Form 8867, Paid Preparer’s Due Diligence Checklist
This form ensures compliance with due diligence requirements for these credits.
5
Q
What identification number requirement must be met for claiming certain tax credits?
A
A valid taxpayer identification number (TIN) must be assigned on or before the due date (or extended due date) of the return.
This applies to credits like the EITC, CTC, and AOTC.
6
Q
Is the Child and Dependent Care Credit refundable in 2025?
A
No
The credit is a percentage of childcare costs incurred while the taxpayer works or seeks work.
7
Q
What are the eligibility tests for the Child and Dependent Care Credit?
A
- Qualifying person test
- Earned income test
- Work-related expense test
- Joint return test
- Provider identification test
These tests ensure that the taxpayer meets all necessary criteria to claim the credit.
8
Q
What is a qualifying person for the Child and Dependent Care Credit?
A
- A dependent child under the age of 13
- A spouse who is physically or mentally disabled
- Any other disabled dependent incapable of self-care
- A disabled person that could be claimed as a dependent except for gross income of $5,200 or more in 2025
9
Q
What is the earned income test for the Child and Dependent Care Credit?
A
Both spouses must have earned income during the year, or be a full-time student or disabled.
For a spouse that is in school or disabled the deemed earned income is $250 per month for one dependent, $500 for two or more.
10
Q
What is the work-related expense test for the Child and Dependent Care Credit?
A
Expenses must be incurred to allow a taxpayer to work or actively search for work.
Exceptions exist for spouses who are disabled or full-time students.
11
Q
What types of expenses qualify for the Child and Dependent Care Credit?
A
- Preschool education
- After-school care
- Disabled care
- Transportation costs by care provider
- Fees and deposits
- Household services
These expenses must be necessary to allow the taxpayer to work.
12
Q
What expenses do not qualify for the Child and Dependent Care Credit?
A
- Tuition for kindergarten and above
- Summer school or tutoring
- Overnight camp costs
- Transportation not provided by daycare
- Forfeited deposits
These expenses do not meet the criteria for work-related care.
13
Q
Who can claim the Child and Dependent Care Credit in the case of divorced or separated taxpayers?
A
Only the custodial parent of the child.
14
Q
Can payments made to a family member who is a dependent qualify for the Child and Dependent Care Credit?
A
No
Child care payments made to a family member who is the taxpayer’s own dependent under 19 years old do not qualify.
Child and Dependent Care credit does not apply if paid to any other dependent listed on the tax return.
15
Q
What are the requirements for a married taxpayer who files separate returns for the purposes of claiming the Child and Dependent Care Credit?
A
- The taxpayer lived apart from their spouse during the last 6 months of the year.
- The taxpayer’s home was the qualifying person’s home for more than half of the year.
- The taxpayer paid more than half of the cost of keeping up the home for the year.
16
Q
What information must be included for the Provider Identification Test for the Child and Dependent Care Credit?
A
The name, address, and identification number of the caregiver or organization who provided care.
17
Q
What is the nonrefundable Child Tax Credit in 2025?
A
$2,200 per qualifying child
18
Q
What is the Additional Child Tax Credit ?
(ACTC)
A
The refundable component of the Child Tax Credit.
It can generate a refund even if the taxpayer does not owe any tax. The maximum refundable amount is $1,700 per qualifying child for 2025, and it’s based on the lesser of 15% of earned income over $2,500 or the unused Child Tax Credit.
19
Q
What are the requirements for a child to qualify for the Child Tax Credit?
A
- Age Test: The child must have been younger than 17 on December 31.
- Relationship Test: The child must be the taxpayer’s child, stepchild, foster child, sibling, step-sibling, half-sibling, or a descendant of any of them.
- Support Test: The child must not provide more than half of their own support.
- Dependency Test: The taxpayer must claim the child as a dependent.
- Joint Return Test: The child cannot file a joint return for the year unless the only reason is to claim a refund.
- Citizenship Test: The child must be a U.S. citizen or U.S. resident alien with a valid Social Security Number.
- Residency Test: The child must have lived with the taxpayer for more than half of the year.
20
Q
Under what conditions can a taxpayer with zero tax liability claim the Additional Child Tax Credit?
A
The Additional Child Tax Credit is refundable and may be claimed even if the taxpayer has no tax liability, as long as the taxpayer meets the eligibility requirements for the Child Tax Credit.
21
Q
How is the Additional Child Tax Credit calculated?
A
The ACTC is the lesser of:
- 15% of the taxpayer’s taxable earned income that is over $2,500
- The amount of unused Child Tax Credit
22
Q
What form is used to report the Additional Child Tax Credit and Credit for Other Dependents?
A
Schedule 8812
23
Q
What is the maximum amount for the Credit for Other Dependents (ODC)?
A
$500
24
Q
What identification is required to claim the Credit for Other Dependents?
A
- The dependent must have a valid identification number (ATIN, ITIN, or SSN) by the due date of the return.
- The dependent must be a U.S. citizen, national, or resident.
The credit applies to dependents who do not qualify for the Child Tax Credit, and the AGI phaseout is the same as the Child Tax Credit.
25
What is the **phaseout threshold** for the Child Tax Credit and Credit for Other Dependents for **unmarried taxpayers**?
$200,000
26
What is the **phaseout threshold** for the Child Tax Credit and Credit for Other Dependents for **joint filers**?
$400,000
27
What is the **maximum adoption credit per child** in 2025?
Up to $17,280 per eligible child.
## Footnote
Up to $5,000 of the adoption credit is refundable, and the MAGI phaseout range is $259,190 - $299,190 for all filing statuses.
28
What is the **phaseout range** for the **adoption credit** in 2025?
$259,190 – $299,190 for all filing statuses allowed to claim the credit.
29
How long can **unused adoption credit** be carried forward?
Five years
30
What **expenses** qualify for the **adoption credit**?
* Attorney fees, adoption fees, and court costs
* Travel expenses related to the adoption
* Costs of an unsuccessful adoption
* Re-adoption expenses for a foreign child
31
Can taxpayers filing MFS claim the adoption credit?
No
32
What is the special rule for claiming the adoption credit for **special needs adoptions**?
Adoptive parents can claim the maximum credit amount even without adoption expenses.
33
What defines a **special needs child** for adoption credit purposes?
* A U.S. citizen or U.S. resident who the government determines cannot or should not return to their parents' home and is **unlikely to be adopted** without assistance.
* A state government or an Indian tribal government may make the special-needs determination.
34
When can **adoption expenses** for **domestic adoptions** be claimed?
Those that are **paid before** the year the adoption becomes final may be claimed in the **year after** the expenses are paid, even if the adoption is not finalized.
35
When can **adoption expenses** for **foreign adoptions** be claimed?
Once the **adoption becomes final**.
36
What are the **two education credits** available for post-secondary education?
* American Opportunity Tax Credit (AOTC)
* Lifetime Learning Credit
37
What **form** is used to claim **education credits**?
**Form 8863**, Education Credits
38
What is the **phaseout range** for **education credits** in 2025 for **unmarried** individuals?
$80,000 - $90,000
39
What is the **phaseout range** for **education credits** in 2025 for **married** couples?
$160,000 - $180,000
40
Can a taxpayer claim both the American Opportunity Credit and the Lifetime Learning Credit for the same student in one year?
No
## Footnote
If a taxpayer incurs education expenses for multiple students, they may be eligible to take the AOTC for one student and the LLC for another student on the same tax return.
41
What **expenses** are considered **qualified for education credits**?
* Tuition and related fees
* Textbooks and other course materials required as a condition of enrollment
42
How is the **American Opportunity Tax Credit** (AOTC) calculated?
The credit covers:
* 100% of the first $2,000 of qualified education expenses, and
* 25% of the next $2,000 of expenses,
for a maximum credit of $2,500 per eligible student.
43
What is the **maximum** amount of the **American Opportunity Tax Credit** (AOTC) per eligible student?
$2,500
## Footnote
The credit covers 100% of the first $2,000 and 25% of the second $2,000 of eligible expenses per student.
44
Name a requirement for a **student** to qualify for the **American Opportunity Tax Credit** (AOTC).
* **Enrolled** in a program leading to a degree, certificate, or recognized educational credential.
* Enrolled at **least half-time** for one academic period beginning in the tax year.
* No **felony drug conviction**.
* Credit can be claimed for a maximum of **four years** of postsecondary education.
45
What is the **refundable portion** of the American Opportunity Tax Credit?
**Up to 40%** of the credit can be refunded, allowing a **maximum of $1,000** even if no tax is owed.
46
# True or False:
Taxpayers filing Married Filing Separately can claim the American Opportunity Tax Credit.
False
47
What is the **maximum amount** of the **Lifetime Learning Credit** per tax return?
$2,000
## Footnote
The credit is 20% of up to $10,000 of qualified expenses.
48
What are the key features of the **Lifetime Learning Credit** that differ from the American Opportunity Tax Credit?
* No degree or workload requirement
* Available for an unlimited number of years
* Felony drug convictions permissible
49
What is the **maximum investment income** allowed for claiming the **Earned Income Tax Credit** (EITC) in 2025?
$11,950
## Footnote
Investment income includes interest, dividends, capital gains, and passive rental income. The limitation is indexed for inflation.
50
What **types of income** qualify as '**earned income**' for the Earned Income Tax Credit?
* Wages
* Tips
* Combat pay
* Union strike benefits
* Net earnings from self-employment
51
What are the **tests** a child must meet to be a **qualifying child for EITC** purposes?
* Relationship test
* Age test
* Joint return test
* Residency test
52
What is the **age requirement** for a qualifying child under the **EITC age test**?
* Age 18 or younger
* Full-time student, age 23 or younger
* Any age, if permanently disabled
## Footnote
A qualifying child must be younger than the taxpayer claiming them for EIC unless the child (dependent) is permanently disabled.
53
# True or False:
A qualifying child can file a joint return with a spouse to claim a refund and still be claimed as a dependent.
True
## Footnote
The exception to the joint return test applies if the joint return is filed only to claim a refund.
54
What is the **residency requirement** for a **child** to qualify for **EITC**?
The child must have **lived with the taxpayer** in the United States for **more than half the year**.
## Footnote
Exceptions exist for temporary absences, and a child born or died during the year meets the residency test if they lived with the parent while alive.
55
Which **tests** must be met for a taxpayer without a qualifying child to claim the '**childless EITC**'?
* Must be between the age of 25 and 65
* Must not qualify as a dependent of another person
* Must live in the United States for more than half the year
* Cannot file Form 2555
## Footnote
Only one spouse on a joint return needs to meet the age requirement.
56
What happens if the **IRS disallows** all or part of the **EITC** after an **audit**?
* Repay with **interest**
* File **Form 8862**
* Information to **Claim Certain Credits after Disallowance**
* Lose **EITC for 2 years** (reckless disregard)
* Lose **EITC for 10 years** (fraud)
## Footnote
EITC disallowance can lead to significant penalties and restrictions on future claims.
57
What is the **Retirement Savings Contributions Credit** also known as?
The Saver’s Credit
## Footnote
Both terms are used interchangeably by the IRS and may appear on the EA exam.
58
What are the requirements to be eligible for the **Retirement Savings Contributions Credit**?
* Be at least age 18 or older
* Not be a full-time student
* Not claimed as a dependent on another person’s return
## Footnote
The credit is based on contributions to IRAs and other qualifying retirement plans.
59
How is the **Saver’s Credit rate** determined?
Based on filing status and adjusted gross income (AGI).
## Footnote
The credit ranges from 10% to 50% of eligible contributions, with phaseout limits based on income.
60
What is the **maximum credit** for the **Retirement Savings Contributions Credit** (Saver’s Credit)?
**$1,000 per taxpayer** ($2,000 if married filing jointly), based on eligible retirement contributions and adjusted gross income (AGI) limits.
61
What is the **Credit for Excess Social Security and RRTA Tax Withheld**?
It is a credit for taxpayers who had too much **Social Security** ($176,100 in 2025) or **RRTA tax** withheld, usually due to working for **multiple employers**.
## Footnote
Form 843 is used when a single employer overwithholds and refuses to refund the excess.
62
What types of **improvements** qualify for the **Residential Clean Energy Credit**?
* Solar panels
* Solar water heaters
* Wind turbines
* Geothermal heat pumps
* Fuel cells
* Battery storage
## Footnote
The credit is equal to 30% of the costs for new energy property installed.
63
What is the **Energy Efficient Home Improvement Credit**?
A n**onrefundable credit** equal to **30% of total improvement expenses**, with annual limits for specific improvements.
64
What are the **annual limits** for the **Energy Efficient Home Improvement Credit**?
* $1,200 per year for energy efficient property and improvements
* $2,000 per year for qualified heat pumps, water heaters, biomass stoves, or boilers
65
What **conditions** must be met to claim the **Energy Efficient Home Improvement Credit**?
Property must be installed in an **existing residence** in the **U.S.**, limited to **primary residences** for some categories.
## Footnote
Newly-constructed homes do not qualify.
66
What is the **Clean Vehicle Credit**?
A **nonrefundable credit** as an incentive to buy **new electric vehicles**, either **$3,750** or **$7,500** depending on meeting certain requirements.
## Footnote
Tax credit is eliminated and will not be allowed for any vehicles acquired after September 30, 2025.
67
What are the **requirements** for claiming the **Clean Vehicle Credit**?
* Final assembly of the vehicle in **North America**
* MSRP cannot exceed **$55,000** ($80,000 for trucks, SUVs, or vans)
* Taxpayer's **MAGI limits**: $300,000 MFJ/QSS, $225,000 HOH, $150,000 single/MFS
## Footnote
Tax credit is eliminated and will not be allowed for any vehicles acquired after September 30, 2025.
68
What is the **Used Clean Vehicle Credit**?
A **nonrefundable credit** for purchasing **used electric vehicles**, the lesser of 30% of the cost or $4,000.
## Footnote
Tax credit is eliminated and will not be allowed for any vehicles acquired after September 30, 2025.
69
What **conditions** must be met to claim the **Used Clean Vehicle Credit**?
* Vehicle purchased from a dealer for **$25,000 or less**
* Vehicle meets **battery** requirements
* Vehicle year at least **two years earlier** than the current year
* Taxpayer's **MAGI limits**: $150,000 MFJ/QSS, $112,500 HOH, $75,000 single/MFS
## Footnote
Tax credit is eliminated and will not be allowed for any vehicles acquired after September 30, 2025.
70
What is the main **difference** between refundable and nonrefundable tax credits?
**Refundable tax credits** can reduce a taxpayer’s liability to zero and generate a refund, while **nonrefundable tax credits** can only reduce liability to zero but not beyond.
71
List the most common **nonrefundable** tax credits in 2025.
* Child and Dependent Care Credit
* American Opportunity Tax Credit
* Lifetime Learning Credit
* Retirement Savings Contributions Credit
* Credit for Other Dependents
* Child Tax Credit
* Individual Energy Credits
* Foreign Tax Credit
72
What is the **purpose** of Form 8867?
To ensure **due diligence** when tax preparers claim specific credits like the Earned Income Tax Credit and Child Tax Credit.
73
Which tax credits strictly require an **SSN**?
* Earned Income Tax Credit (EITC)
* Child Tax Credit (CTC)
* Additional Child Tax Credit (ACTC)
74
Can a taxpayer claim the Child and Dependent Care Credit for **tuition** for children in kindergarten and above?
No.
## Footnote
Tuition for children in kindergarten and above, summer school, and tutoring programs do not qualify as expenses for the Child and Dependent Care Credit.
75
# True or False:
The Child Tax Credit is affected by a child's disability.
False
## Footnote
The main factor for the Child Tax Credit is the child's age, not disability.
76
# True or False:
Expenses for adopting a spouse's child qualify for the Adoption Credit.
False
## Footnote
Adoption expenses for a spouse's child do not qualify for the Adoption Credit.
77
Under what conditions can **education credits** not be claimed?
* If the taxpayer can be claimed as a dependent on another person’s tax return
* Married individuals filing separately
* Taxpayers with incomes within or above the phaseout ranges ($80,000-$90,000 for unmarried individuals and $160,000-$180,000 for married couples)
78
What **types of expenses** qualify for the Lifetime Learning Credit?
* Tuition and fees
* Books, supplies, and equipment paid directly to the educational institution
79
# True or False:
The Lifetime Learning Credit can be claimed for an unlimited number of years for each student.
True
80
What are the requirements for claiming the **Earned Income Tax Credit**?
| (EITC)
* Valid Social Security number for employment
* Earned income from wages, combat pay, or self-employment
* U.S. citizen or legal resident all year
* Cannot file Form 2555
* Investment income under $11,950 in 2025
81
What **types of income** are **not** considered 'earned income' for the EITC?
* Social Security benefits
* Alimony or child support
* Pensions or annuities
* Unemployment benefits
* Inmate wages
* Income from investments or passive sources
82
When can a taxpayer **request a refund** for excess Social Security tax withheld?
When withholding **exceeds the annual maximum** due to working multiple jobs
83
What must taxpayers include on their tax return when claiming the **Energy Efficient Home Improvement Credit** for property placed in service in 2025?
A Product Identification Number (PIN) or a manufacturer's Qualified Manufacturer (QM) code.
84
What are the **credit amounts** available under the **Clean Vehicle Credit**?
* $3,750 for meeting the critical minerals requirement
* $3,750 for meeting the battery component requirement
* $7,500 for meeting both requirements
## Footnote
This credit is eliminated for vehicles acquired after September 30, 2025.
85
Can a taxpayer claim the **Earned Income Tax Credit** (EITC) retroactively after receiving a Social Security Number (SSN)?
No, taxpayers cannot claim the EITC retroactively if they receive their SSN after the tax return due date.
86
What is the **maximum amount** of qualifying expenses for the **Child and Dependent Care Credit** for one dependent in 2025?
$3,000
87
In what situation can **nontaxable combat pay** be included as earned income for the EITC?
If it provides a better tax result for the taxpayer.
88
# True or False:
A child must have a valid SSN to be a qualifying child for EITC purposes.
True
## Footnote
An ITIN or ATIN is not sufficient for EITC purposes, but parents may qualify for the 'childless EITC' if their child does not have an SSN.
89
What is the purpose of **Form 8880**?
To calculate the amount of the Saver’s Credit
90
What should an employee do if a single employer **refuses to refund** an over-collection of FICA taxes?
File a claim for refund using **Form 843**, Claim for Refund and Request for Abatement.
91
What **percentage of costs** is covered by the Residential Clean Energy Credit?
**30%** of the costs for new energy property.
## Footnote
This includes certain labor and installation costs.
EA - Part 1: Individuals
flashcards
Decks in class (19)
# Cards
-
Essential Tax Law Figures for Individuals43
-
Unit 1: Preliminary Work with Taxpayer Data80
-
Unit 2: Determining Filing Status and Residency45
-
Unit 3: Dependency Relationships33
-
Unit 4: Taxable and Nontaxable Income85
-
Unit 5: Investment Income and Expenses32
-
Unit 6: Calculating the Basis of Assets37
-
Unit 7: Capital Gains and Losses45
-
Unit 8: Nonrecognition Property Transactions48
-
Unit 9: Rental and Royalty Income52
-
Unit 10: Other Taxable Income69
-
Unit 11: Adjustments to Gross Income51
-
Unit 12: Standard Deduction and Itemized Deductions80
-
Unit 13: Individual Tax Credits91
-
Unit 14: The ACA and the Premium Tax Credit25
-
Unit 15: Additional Taxes and Credits40
-
Unit 16: Individual Retirement Accounts77
-
Unit 17: Foreign Financial Reporting44
-
Unit 18: Estate and Gift Taxes for Individuals52
