EA Exam 2017 Part 1 - Unit 14: Tax
Credits ACTUAL QUESTIONS AND
CORRECT ANSWERS
Tax Credit: - CORRECT ANSWERS✅✅Reduces a taxpayers liability on a dollar for dollar
basis.
Why is a tax credit more valuable than a tax deduction? - CORRECT ANSWERS✅✅A tax
deduction of the same dollar amount only reduces the amount of taxable income. A tax credit
reduces a taxpayers liability.
What are the two main types of tax credits? - CORRECT ANSWERS✅✅Refundable or
Non-refundable
Common nonrefundable tax credits: - CORRECT ANSWERS✅✅Foreign tax credit, credit
for child/dependent care expenses, child tax credit, adoption credit, lifetime learning credit,
retirement savings contributions credit, residential energy credit
What credit is only partially refundable? - CORRECT ANSWERS✅✅American
Opportunity Credit
Which form can an individual taxpayer not use if claiming a credit? - CORRECT
ANSWERS✅✅Form 1040EZ
Common refundable credits: - CORRECT ANSWERS✅✅Additional Child Tax credit,
Earned Income Tax Credit, Premium Tax Credit
Child Dependent Care Credit: What is the credit for? - CORRECT ANSWERS✅✅The
credit is for child care expenses for children under 13 and for disabled dependents of any age.
Child Dependent Care Credit: Percentage range - CORRECT ANSWERS✅✅20%-35% of
qualifying expenses based on income
, Child Dependent Care Credit: Annual Cap - CORRECT ANSWERS✅✅$3,000 for one child
and $6,000 for two or more children.
Child Dependent Care Credit: If the taxpayer receives a reimbursement under an FSA the
amount is treated as pre-tax. How must the taxpayer determine the credit? - CORRECT
ANSWERS✅✅Qualified expenses - reimbursed amount = Child Dependent Care Credit
amount
Child Dependent Care Credit: Eligibility tests (5) - CORRECT ANSWERS✅✅1. Qualifying
Person Test,
2. Earned Income Test,
3. Work-related expense test,
4. Joint return test,
5. provider identification test.
Child Dependent Care Credit: Qualifying Person Test - CORRECT ANSWERS✅✅1. A
dependent child under the age of 13 at the time care was provided
2. a spouse who is physically or mentally unable to provide for themselves
3.any other disabled person that is unable to provide for themselves and the tax payer could
claim as a dependent if not for certain circumstances.
Child Dependent Care Credit: Earned Income Test - CORRECT ANSWERS✅✅Generally
both spouses must work, there must be earned income during the year. The credit is not
available for MFS filers. The credit cannot exceed income for the year for the lowest earning
spouse or single individual.
Exceptions are for: Full-time students, or a Disabled spouse. The deemed earned income
amount is $250 per month or $500 per month with 2 or more dependents.
Child Dependent Care Credit: Work-Related Expense Test - CORRECT
ANSWERS✅✅Child and dependent care expenses must be work related to qualify. The
taxpayer must be working or searching for work.
Child Dependent Care Credit: Work-Related Expense Test - qualifying expenses -
CORRECT ANSWERS✅✅1. Education - preschool or after-school care for children in
kindergarten or above.
Credits ACTUAL QUESTIONS AND
CORRECT ANSWERS
Tax Credit: - CORRECT ANSWERS✅✅Reduces a taxpayers liability on a dollar for dollar
basis.
Why is a tax credit more valuable than a tax deduction? - CORRECT ANSWERS✅✅A tax
deduction of the same dollar amount only reduces the amount of taxable income. A tax credit
reduces a taxpayers liability.
What are the two main types of tax credits? - CORRECT ANSWERS✅✅Refundable or
Non-refundable
Common nonrefundable tax credits: - CORRECT ANSWERS✅✅Foreign tax credit, credit
for child/dependent care expenses, child tax credit, adoption credit, lifetime learning credit,
retirement savings contributions credit, residential energy credit
What credit is only partially refundable? - CORRECT ANSWERS✅✅American
Opportunity Credit
Which form can an individual taxpayer not use if claiming a credit? - CORRECT
ANSWERS✅✅Form 1040EZ
Common refundable credits: - CORRECT ANSWERS✅✅Additional Child Tax credit,
Earned Income Tax Credit, Premium Tax Credit
Child Dependent Care Credit: What is the credit for? - CORRECT ANSWERS✅✅The
credit is for child care expenses for children under 13 and for disabled dependents of any age.
Child Dependent Care Credit: Percentage range - CORRECT ANSWERS✅✅20%-35% of
qualifying expenses based on income
, Child Dependent Care Credit: Annual Cap - CORRECT ANSWERS✅✅$3,000 for one child
and $6,000 for two or more children.
Child Dependent Care Credit: If the taxpayer receives a reimbursement under an FSA the
amount is treated as pre-tax. How must the taxpayer determine the credit? - CORRECT
ANSWERS✅✅Qualified expenses - reimbursed amount = Child Dependent Care Credit
amount
Child Dependent Care Credit: Eligibility tests (5) - CORRECT ANSWERS✅✅1. Qualifying
Person Test,
2. Earned Income Test,
3. Work-related expense test,
4. Joint return test,
5. provider identification test.
Child Dependent Care Credit: Qualifying Person Test - CORRECT ANSWERS✅✅1. A
dependent child under the age of 13 at the time care was provided
2. a spouse who is physically or mentally unable to provide for themselves
3.any other disabled person that is unable to provide for themselves and the tax payer could
claim as a dependent if not for certain circumstances.
Child Dependent Care Credit: Earned Income Test - CORRECT ANSWERS✅✅Generally
both spouses must work, there must be earned income during the year. The credit is not
available for MFS filers. The credit cannot exceed income for the year for the lowest earning
spouse or single individual.
Exceptions are for: Full-time students, or a Disabled spouse. The deemed earned income
amount is $250 per month or $500 per month with 2 or more dependents.
Child Dependent Care Credit: Work-Related Expense Test - CORRECT
ANSWERS✅✅Child and dependent care expenses must be work related to qualify. The
taxpayer must be working or searching for work.
Child Dependent Care Credit: Work-Related Expense Test - qualifying expenses -
CORRECT ANSWERS✅✅1. Education - preschool or after-school care for children in
kindergarten or above.
