Ch.13 Tax Credits Final Review Exam
Questions And All Correct Answers.
Tax Credits - Answer Amounts that directly reduce a taxpayer's liability. The tax benefit received from a
tax credit is not dependent on the taxpayer's marginal tax rate, where as the benefit of a tax deduction
or exclusion is dependent on the taxpayer's tax bracket.
Refundable Credits - Answer A tax credit that is payed to the taxpayer even if the amount pf the credit
exceeds the taxpayer's tax liability
Nonrefundable Credits - Answer A credit that is not paid if it exceeds the taxpayer's tax liability. Some
nonrefundable credits qualify for carryback and carryover treatment.
Earned Income Credit - Answer Refundable credit. A form of negative income taxto assist low-income
taxpayers. Earned Income and AGI must be less than certain threshold amounts. Generally, one or more
qualifying children must reside with taxpayer. Amount determined by reference to Earned Income Credit
Table published by IRS.
Child and Dependent Care Credit - Answer Nonrefundable personal credit. No carryback or
carryforward. Benefits who incur employment-related child or dependent care expenses in order to work
or seek employment. ELigible taxpayers must have either a dependent under the age of 13 or a
dependent (any age) or spouse who is physically or mentally incapacitated.
Rate ranges from 20% to 35% depending on AGI. Maximum base credit is $3,000 for one qualifying
individual, $6,000 for two or more.
Elderly or Disabled Credit - Answer Nonrefundable personal credit. No carrback or carryforward.
Provides relief for taxpayers not receiving substantial tax-free retirement benefits.
15% of sun of base amount MINUS reductions for Social Security and excess AGI. Base amount is fixed by
law.
Permanent and Total Disability - Answer A person is considered permanently and totally disabled if he
or she is unable to engage in any substantial gainful activity due to a physical or mental impairment. In
addition, this impairment must be one that can be expected to result in death or that has lasted or can
Questions And All Correct Answers.
Tax Credits - Answer Amounts that directly reduce a taxpayer's liability. The tax benefit received from a
tax credit is not dependent on the taxpayer's marginal tax rate, where as the benefit of a tax deduction
or exclusion is dependent on the taxpayer's tax bracket.
Refundable Credits - Answer A tax credit that is payed to the taxpayer even if the amount pf the credit
exceeds the taxpayer's tax liability
Nonrefundable Credits - Answer A credit that is not paid if it exceeds the taxpayer's tax liability. Some
nonrefundable credits qualify for carryback and carryover treatment.
Earned Income Credit - Answer Refundable credit. A form of negative income taxto assist low-income
taxpayers. Earned Income and AGI must be less than certain threshold amounts. Generally, one or more
qualifying children must reside with taxpayer. Amount determined by reference to Earned Income Credit
Table published by IRS.
Child and Dependent Care Credit - Answer Nonrefundable personal credit. No carryback or
carryforward. Benefits who incur employment-related child or dependent care expenses in order to work
or seek employment. ELigible taxpayers must have either a dependent under the age of 13 or a
dependent (any age) or spouse who is physically or mentally incapacitated.
Rate ranges from 20% to 35% depending on AGI. Maximum base credit is $3,000 for one qualifying
individual, $6,000 for two or more.
Elderly or Disabled Credit - Answer Nonrefundable personal credit. No carrback or carryforward.
Provides relief for taxpayers not receiving substantial tax-free retirement benefits.
15% of sun of base amount MINUS reductions for Social Security and excess AGI. Base amount is fixed by
law.
Permanent and Total Disability - Answer A person is considered permanently and totally disabled if he
or she is unable to engage in any substantial gainful activity due to a physical or mental impairment. In
addition, this impairment must be one that can be expected to result in death or that has lasted or can
