Study Unit 8: Tax Credits and Payments

1. In 2025, Ruth had wages of $34,000, and her husband John’s wages were $27,000. They have three children ages 3, 6, and 9. They paid a total of $7,200 to Creative Child Care School, Inc. Assuming a 20% credit rate, what will be their Child and Dependent Care Credit?

$1,440

$1,200

$6,000

$7,200

2. For the current year, Gannon Corporation has U.S. taxable income of $500,000, which includes $100,000 from a foreign division. Gannon paid $45,000 of foreign income taxes on the income of the foreign division. Assuming Gannon’s U.S. income tax for the current year before credits is $105,000, its maximum Foreign Tax Credit for the current year is

$9,000

$45,000

$21,000

$84,000

3. Which of the following is NOT a qualifying student for purposes of the Lifetime Learning Credit?

A student in a graduate program.

A part-time student (less than half-time).

A student in a vocational program.

All are qualifying students for the Lifetime Learning Credit.

4. All of the following child and dependent care expenses may qualify as work-related for purposes of the Child and Dependent Care Credit EXCEPT

The cost of care provided to a qualifying person outside the home.

The cost of getting a qualifying person from the home to the care location and back.

The cost of household services that are partly for the well-being of a qualifying person.

The cost of sending a child to school if the child is in a grade below kindergarten and the cost is incident to and cannot be separated from the cost of care.

5. Virginia’s earned income for 2025 was $24,000. She paid $3,000 to a qualifying child care center for the care of her 2-year-old son while she worked. She received $2,000 from Social Services to assist with her child care expenses. Compute Virginia’s Child and Dependent Care Credit for 2025 from the following excerpt from the child and dependent care table:

IF your adjusted gross income is:	THEN the percentage is:
Over:	But not over:
$ 0	$15,000	35%
$15,000	$17,000	34%
$17,000	$19,000	33%
$19,000	$21,000	32%
$21,000	$23,000	31%
$23,000	$25,000	30%
$25,000	$27,000	29%

$300

$900

$930

$310

6. Jerry has two dependent children, Greg and Mandy, who are attending an accredited college in 2025. Greg, a fifth-year senior since January 1, spent $7,000 for tuition and fees. Mandy, a freshman with no prior post-secondary education, had tuition expenses of $4,000. Jerry meets all the income and filing status requirements for the education credits. There is no tax-free assistance to pay these expenses. Jerry’s tax liability before credits equals $14,000. What is the maximum credit that Jerry may claim on his 2025 tax return?

$2,200 Lifetime Learning Credit.

$5,000 AOTC.

$2,500 AOTC and $1,000 Lifetime Learning Credit.

$2,500 AOTC and $1,400 Lifetime Learning Credit.

7. Which one of the following could prevent an individual from qualifying for the Child and Dependent Care Credit?

Unearned income of more than $400.

Paying for care for more than one qualifying person.

Not identifying the care provider on the tax return.

Paying for child care while looking for work.

8. Liz incurred qualified adoption expenses of $18,000 in 2025. Liz’s AGI for 2025 was $160,000. What is the amount of the credit Liz can take in 2025 for the adoption expenses she incurred?

$9,000

$17,280

$18,000

9. Which of the following is earned income for Earned Income Credit purposes?

Unemployment compensation.

Alimony.

The wages of a minister who has an exemption from self-employment tax.

The wages of an inmate working in the prison laundry.

10. For which of the following dependent children will a parent NOT be allowed a Child Tax Credit?

15-year-old daughter.

12-year-old foster child.

19-year-old stepchild.

16-year-old grandchild.

11. The Minimum Tax Credit (MTC) allocable for the current year is limited to

Current-year gross regular tax (reduced by certain credits) minus current-year tentative minimum tax.

Current-year gross regular tax (without regard to any credits) minus current-year tentative minimum tax.

Current-year gross regular tax (reduced by certain credits) plus current-year tentative minimum tax.

Current-year gross regular tax (reduced by certain credits) minus previous-year tentative minimum tax.

12. Which of the following is NOT required for a taxpayer to be eligible for the Premium Tax Credit?

The taxpayer’s health insurance is purchased through the Marketplace.

The taxpayer is not eligible to be claimed as a dependent by another taxpayer.

The taxpayer does not file a separate return if married, unless an exception applies.

The taxpayer is eligible for coverage through an employer plan.

13. Mr. and Mrs. Robinson are both over age 65 and file a joint return. During the current year, they received $4,000 in nontaxable benefits from Social Security. This was their only nontaxable income. Their adjusted gross income was $12,000. How much can they claim as tentative credit for the elderly?

$225

$375

$525

14. Brad, age 19, is a full-time student in 2025. Brad works a part-time job and contributes $500 to his IRA account. He has AGI of $15,000 for the year and cannot be claimed as a dependent by another taxpayer. Assuming that Brad files as a single taxpayer, what amount of Retirement Savings Contributions Credit may Brad claim in 2025?

$250

$100

$50

15. The Earned Income Credit is available to

Persons with a qualifying child.

Persons without a qualifying child.

Persons who are age 40.

All of the answers are correct.

16. Carol, an individual taxpayer, received a Form 1099-Div from her global mutual fund that showed dividend income of $500 and foreign taxes withheld of $70. This is the only foreign source income she received for the year. Her income tax before any credits is $4,320. On which of the following forms may Carol elect to claim a credit for the foreign tax paid?

Schedule 3 (Form 1040), line 13, “Other...refundable credits:”

Schedule 3 (Form 1040), line 1, “Foreign tax credit.”

Form 1040, Schedule A, Itemized Deductions, line 6, “Other taxes.”

Form 1040, Schedule B, by electing to reduce the dividend income by $140 ($70 × 2).

17. If a taxpayer has a dependent that (s)he cannot claim for the child tax credit, the dependent may still qualify the taxpayer for which $500 credit?

The alternative minimum tax credit.

The state and local income tax credit.

The credit for other dependents.

The credit for foreign dependents.

18. The following information pertains to Wald Corporation’s operations for the current year:

Worldwide taxable income	$300,000
U.S. source taxable income	180,000
U.S. income tax before Foreign Tax Credit	96,000
Foreign nonbusiness-related interest earned	30,000
Foreign income taxes paid on
nonbusiness-related interest earned	6,000
Other foreign-source taxable income	90,000
Foreign income taxes paid on other
foreign-source taxable income	30,000

What amount of Foreign Tax Credit may Wald claim for the current year?

$28,800

$34,800

$36,000

$38,400

19. Which one of the following statements about the foreign operations of Nora Corporation (a domestic corporation) is true?

Nora may take a credit, but not a deduction, for the income taxes paid to a foreign country.

Nora may take a deduction, but not a credit, for the income taxes paid to a foreign country.

Nora may elect to take either a credit or a deduction, but not both, for the income taxes paid to a foreign country.

Nora may exclude both revenues and expenses of the foreign operations from its federal income tax return.

20. Ginger is a United States citizen who paid the following 2025 foreign income taxes:

$10,000 tax paid to England on consulting fee income
$5,000 tax paid to Spain on earned income for which she claimed the foreign earned income exclusion
$1,000 tax paid to France, which she deducted as an itemized deduction

These were Ginger’s only sources of income during 2025. Her U.S. tax liability was $23,000. What amount of Foreign Tax Credit can she claim on her 2025 return?

$16,000

$10,000

$7,000

21. The Foreign Tax Credit (FTC) is usually claimed on Form 1116, Foreign Tax Credit, unless the taxpayer elects to claim the credit on Schedule 3 (Form 1040). To claim the credit on Form 1040, the taxpayer must meet all of the following conditions EXCEPT

The taxpayer is an individual.

There is no carryover.

The only foreign source income for the year is passive income that is reported on a payee statement.

The qualified foreign taxes (QFTs) for the year do not exceed $300 ($600 for a joint return).

22. Which of the following is a disqualification for the Child and Dependent Care Credit?

Head of household filing status.

Making child care payments to relatives.

Paying for care for your spouse who is not physically or mentally able to care for himself or herself while you work.

Child care only while you perform unpaid volunteer work.

23. All of the following statements with respect to qualifications to claim the Child and Dependent Care Credit are true EXCEPT

The care must be for one or more qualifying persons.

You must keep up a home that you live in with the qualifying persons.

You must have earned income.

If you make payments to your sister, she can be your dependent.

24. Each of the following can be qualifying persons for purposes of claiming the Child and Dependent Care Credit EXCEPT

A spouse who was physically or mentally unable to care for himself or herself.

A 14-year-old child who is your dependent.

A person who is physically unable to care for himself or herself, who lived with the taxpayer for more than half the year, and who would have been claimed as a dependent if (s)he had earned less than $5,200 in gross income.

A 10-year-old child who is your dependent.

25. Mr. and Mrs. Pine both work full time. They have three children ages 18, 6, and 3. For purposes of claiming the Child and Dependent Care Credit, which of the following expenses qualify?

Payments to the taxpayer’s 18-year-old daughter to care for her 3-year-old sister.

Payments to the taxpayer’s 20-year-old niece who lives with them and can be claimed as their dependent.

Payments to the taxpayer’s mother who lives with them but does not qualify as their dependent.

Payments to a private school for their 6-year-old to attend first grade.

26. Carmella is divorced and has two children, ages 3 and 9. For 2025, her adjusted gross income is $30,000, all of which is earned income. Carmella’s younger child stays at her employer’s on-site child care center while she works. The benefits from this child care center qualify to be excluded from her income. Carmella’s employer reports the value of this service as $3,000 for the year. This amount is shown in box 10 of Carmella’s Form W-2, but is not included in taxable wages in box 1. A neighbor cares for Carmella’s older child after school, on holidays, and during the summer. Carmella pays her neighbor $3,000 for this care. What is Carmella’s Child and Dependent Care Credit for 2025?

$600

$810

$1,050

$1,620

27. Mr. and Mrs. Wilson’s 5-year-old son, Dennis, goes to kindergarten in the morning. In the afternoon, he attends a day care center. The cost of sending Dennis to the day care center for 2025 was $3,400. Mr. Wilson’s earned income was $40,000, and Mrs. Wilson’s earned income was $2,100. Based on the above information, the amount of the Wilson’s work-related expenses used to figure the Child and Dependent Care Credit for 2025 cannot be more than

$2,100

$2,400

$3,400

$4,800

28. Each of the following can be qualifying persons for purposes of claiming the Child and Dependent Care Credit EXCEPT

A spouse who was physically or mentally unable to care for himself or herself.

A dependent, age 5, who is sent to an overnight camp while the parent is out of town on business.

A dependent who is physically handicapped.

A 10-year-old grandson who is your dependent.

29. Zach and Myra have four children ranging in age from 2 to 10. Zach has wages of $80,000, and Myra has wages of $40,000. Two of the children went to Child Nursery School, Inc., at a total cost of $18,000. The two older children attended a qualified after-school program that costs $2,500. What amount of childcare expenses can be used to determine the Child and Dependent Care Credit on their 2025 return?

$10,500

$3,000

$4,800

$6,000

30. With respect to the Child and Dependent Care Credit, all of the following statements apply EXCEPT

You must pay child or dependent care expenses so that you (and your spouse) can work or look for work.

The payments must be to someone you (or your spouse) cannot claim as a dependent.

The child cannot have in excess of $500 of his or her own unearned income.

The maximum amount of employment-related expenses to which the credit may be applied is $3,000 less excludable employer dependent-related expenses ($6,000 if two or more persons were cared for).

31. Marc and Mandy’s dependent children, ages 3 and 4, attend day care where the total expense for 2025 was $5,200, $2,600 per child. Marc earned $20,000 and Mandy earned $15,000, and the two are a married couple. How much Child and Dependent Care Credit can they claim for 2025?

Adjusted Gross Income	Percentage for Credit
$15,000	35
$20,000	32
$35,000	25

$1,300

$5,200

$1,500

$1,820

32. Which of the following is true regarding the premium tax credit (PTC)?

Married individuals are required to file a joint return to qualify for the credit.

For at least 6 months during the year the individual was enrolled in a qualified health plan.

Form 1095-A, Health Insurance Marketplace Statement, is not needed to complete Form 8962, Premium Tax Credit (PTC).

No PTC is allowed for any period during which an individual is not lawfully present in the United States.

33. Which of the following statements is NOT a general requirement to qualify for the Child and Dependent Care Credit?

You must maintain a household that includes a qualifying individual.

Your expenditures must be necessary to enable you to be gainfully employed.

Your payments for services must not be to dependent relatives.

You must be divorced or legally separated when you incur the expense.

34. All of the following qualify as work-related expenses for computing the Child and Dependent Care Credit EXCEPT

The parent-employer’s portion of Social Security tax paid on wages for a person to take care of dependent children while the parents work.

Payments to a nursery school for the care of dependent children while the parents work.

The cost of meals for a housekeeper who provides necessary care for a dependent child while the parents work.

Payments to a housekeeper who provides dependent care while the parent is off from work because of illness.

35. Bethany is single and has adjusted gross income of $40,000. Bethany works full-time and keeps up a home for herself and her dependent father, who is not able to care for himself. She pays a housekeeper $1,000 per month to care for and provide meals to her father. What is the maximum amount of annual housekeeper expenses that Bethany can use to compute her Child and Dependent Care Credit?

$1,320

$3,000

$12,000

$6,000

36. Mr. and Mrs. Donegan are filing a joint return for the current year. Mr. Donegan was employed the full year. Mrs. Donegan was a full-time student for 9 months and was not employed at any time during the year. For the 9 months that Mrs. Donegan was a student, she paid $250 per month to a child care center to care for their 4-year-old daughter. For purposes of the Child and Dependent Care Credit, Mrs. Donegan is considered to have current-year earned income of

$2,250

$3,000

$3,600

$6,000

37. Miss Dunn, a single parent who keeps up a home for herself and her two preschool children, paid work-related expenses of $5,200 for child care at a nursery school. Her adjusted gross income is $20,000, the sole source of which is wages. What amount can she claim as a Child and Dependent Care Credit?

$1,612

$1,664

$1,716

$1,920

38. None of the following are qualifying persons for purposes of claiming the Child and Dependent Care Credit EXCEPT

A spouse who is physically handicapped but does not need constant supervision.

A 15-year-old dependent.

A dependent who was physically unable to care for himself or herself for whom dependency would have been claimed if the dependent had earned less than $5,200 in gross income.

A cousin who lived in the home for the first half of the year.

39. Jerry and Ann Moore are married and keep up a home for their two preschool children, ages 2 and 4. They claim their children as dependents and file a joint return using Form 1040. Their adjusted gross income (AGI) is $27,500. Jerry earned $12,500, and Ann earned $15,000. During the year, they pay work-related expenses of $3,000 for child care for their son, Daniel, at a neighbor’s home and $2,200 for child care for their daughter, Amy, at Pine Street Nursery School. How much of their child care payments are eligible for the Child and Dependent Care Credit on their return?

$3,000

$6,000

$5,200

40. Which one of the following is NOT a qualifying person for purposes of the Child and Dependent Care Credit?

Spouse who was physically unable to care for himself or herself.

Dependent who was age 12 when the care was provided and for whom the taxpayer can claim the dependent.

Child who was under age 13 when the care was provided, but who lived with the taxpayer’s former spouse all year.

Dependent who was mentally unable to care for himself or herself and for whom the taxpayer can claim as a dependent.

41. To qualify for the American Opportunity Tax Credit (AOTC), the student must be enrolled

At least part-time.

At least half-time for one academic period for the year.

At least full-time for one academic period for the year.

There is no enrollment requirement.

42. Cathy, a single mother, has modified AGI of $86,000. In 2025, her daughter began work on her bachelor’s degree. Cathy pays $6,000 in qualified tuition for her daughter’s first semester. What is the amount of American Opportunity Tax Credit (AOTC) Cathy is allowed on her return?

$2,500

$1,500

$1,000

43. Mr. and Mrs. Baker, who file a joint tax return, have an adjusted gross income of $75,000 for 2025. Their son, Tony, began his fifth year of college on July 15, 2025. The Bakers’ expenses incurred in 2025 were $6,000 for tuition. What is the amount of Lifetime Learning Credit the Bakers may claim in 2025?

$1,200

$2,000

$10,000

$6,000

44. Karen, filing as head of household, and her son James and daughter Julia are all in graduate school. James and Julia are not dependents on Karen’s return, although they live with her and she pays all of their education expenses. Karen paid $6,000 in qualified tuition expenses for herself in January 2025 for the term starting in January 2025. She also paid $2,500 in qualified tuition expenses for James and another $2,500 for Julia in July 2025 for the term starting in July 2025. Her adjusted gross income is $100,000. Which of the following about the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit is true for tax year 2025?

Karen may claim no AOTC and $2,000 Lifetime Learning Credit.

Karen may claim $5,000 AOTC and $1,000 Lifetime Learning Credit.

Karen may claim neither the AOTC nor the Lifetime Learning Credit.

Karen may claim no AOTC and $1,000 Lifetime Learning Credit.

45. In 2025, Jonathan Smith paid his educational expenses at a community college where he completed his freshman year and began his sophomore year. His father, John Smith, provides more than half of the support for Jonathan and claims him as a dependent on his tax return. Which of the following is true?

Jonathan is eligible to take the AOTC on his 2025 tax return.

John is eligible to take the AOTC on his 2025 tax return.

Jonathan and John may split the AOTC between their 2025 tax returns.

Neither may take the AOTC.

46. Which of the following are eligible expenses for the AOTC?

Tuition
Books
Fees required for enrollment

I only.

I and III only.

II and III only.

I, II, and III.

47. Which of the following statements is NOT true regarding tax benefits for education?

The AOTC may be claimed for tuition expenses incurred in the first 4 years of post-secondary education.

The dollar limitations for the AOTC are calculated on a per-student basis.

The Lifetime Learning Credit is allowed for tuition paid for graduate program studies.

Room and board are qualifying expenses for the AOTC.

48. Which of the following statements concerning the American Opportunity Tax Credit (AOTC) is false?

The maximum allowable credit is $2,500 per student.

The credit is partially refundable.

The credit is available for all qualified tuition and room and board expenses.

The allowable amount of the credits is reduced for taxpayers who have modified adjusted gross income above certain amounts.

49. What is the maximum amount of qualified expenses allowed per year for the Lifetime Learning Credit?

$1,000

$5,000

$10,000

$15,000

50. A head of household taxpayer claiming an above-the-line IRA deduction of $7,000 with AGI of $35,000 may claim a maximum Retirement Savings Contribution Credit of

$1,000

$2,000

$7,000

51. When considering a taxpayer’s Retirement Savings Contribution Credit, what is the AGI limit for a taxpayer who is married and filing jointly?

$4,000

$29,500

$59,250

$79,000

52. Liz has adjusted gross income of $70,000, no foreign source income, and a tax before credits of more than $7,000. Her dependents include her son, Ben, who turned 17 in September 2025; her daughter, Sheila, who is 12; and her niece, Abigail, who is 6. All of the children are U.S. citizens and lived with her all year. What is the amount of Child Tax Credit she may claim on her 2025 return filed April 15, 2026?

$2,200

$4,400

$6,600

53. For purposes of claiming the Child Tax Credit, which of the following is NOT true for a qualifying child?

Child must be under age 15 at the end of the year.

Child must be a citizen or resident of the United States.

Child must be claimed as your dependent.

Child may be an eligible foster child.

54. Hollie filed as head of household and would like to take the Child Tax Credit for Amanda in 2025. Which of the following statements is false regarding the Child Tax Credit?

Amanda must be under 18 at the end of the tax year.

Hollie must claim Amanda as a dependent.

The Child Tax Credit is nonrefundable.

If Hollie’s adjusted gross income is above $200,000, her credit will be reduced or eliminated.

55. Which of the following statements is NOT true regarding the Child Tax Credit for 2025?

A qualifying child must be under age 13 at the end of 2025.

The Child Tax Credit is nonrefundable.

The Child Tax Credit may be limited depending on modified adjusted gross income.

The maximum Child Tax Credit for each qualifying child is $2,200 in 2025.

56. Which of the following is NOT a requirement for a qualifying child for purposes of the Child Tax Credit?

The child is claimed as your dependent.

The child was under age 19 at the end of 2025 or under age 24 at the end of 2025 and was a student.

The child is your son, daughter, adopted child, grandchild, stepchild, foster child, sibling, or descendant of siblings.

The child is a citizen or resident of the United States.

57. Mary files as head of household and has three dependent children, ages 15, 16, and 17. Mary and the children are U.S. citizens and all have Social Security numbers. Her only income is a salary of $205,500. Her tax is $36,330. How much Child Tax Credit and Credit for Other Dependents is she allowed in 2025?

$6,600

$4,900

$4,600

58. Sally and Joe Johnson have one child who is a U.S. citizen under the age of 17. Their earned income for all of 2025 was $80,000. What is the amount of Child Tax Credit that they may take in 2025 if they file a joint return?

$2,500

$1,700

$1,000

$2,200

59. Jerry and Lori, who are married and file a joint return, have two qualifying children and earned income of $38,500 in 2025. What is the amount of their Child Tax Credit and Additional Child Tax Credit combined for 2025 (The applicable tax rate is 10%.)?

$2,200

$700

$4,100

60. Which of the following is used to calculate the Additional Child Tax Credit?

Instructions for Form 1040.

Form 2441 (Child and Dependent Care Expenses).

Form 1116 (Foreign Tax Credit).

Form 8812 (Credits for Qualifying Children and Other Dependents).

61. During the current year, Mr. Hughes celebrated his 55th birthday. In order to qualify for the Credit for the Elderly or the Disabled, Mr. Hughes must have

Retired on permanent and total disability.

Received nontaxable disability benefits.

Reached mandatory retirement age.

Worked at least part time for the minimum wage in 2 of the preceding 3 years.

62. Ms. Gower is 58 years old, is single, and files Form 1040. In 2023, she retired on permanent and total disability.

Ms. Gower received the following income for 2025:
Nontaxable Social Security	$2,000
Interest (taxable)	100
Taxable disability pension	8,400

What is Ms. Gower’s Credit for the Elderly or the Disabled in 2025 before any income tax limitations?

$375

$675

$750

63. Dan and Marge filed a joint return for 2025. Dan was 67 years old, and Marge’s 65th birthday was January 1, 2026; neither of them are disabled. During 2025, they received total nontaxable income of $3,800 from Social Security. Their adjusted gross income was $16,000. How much can they claim as a credit for the elderly before any income tax limitation?

$105

$120

$375

64. All of the following statements regarding the “Credit for the Elderly or the Disabled” are true EXCEPT

The amount of the credit is based on age and filing status.

Married persons living together must file a joint return to be eligible for the credit.

A person under 65 must be retired due to being permanently and totally disabled to be eligible for the credit.

The amount of the credit that is not absorbed can be carried back 3 years or carried forward 5 years.

65. Mr. K is 67 years old, single, and retired. During the current year, he received a taxable pension from his former employer in the amount of $4,000. His adjusted gross income is $15,500, and he received $650 of nontaxable Social Security benefits. His tax before credits is $80. What is Mr. K’s Credit for the Elderly or the Disabled?

$750

$53

$80

66. During the year, Mr. Yogi celebrated his 63rd birthday. In order to qualify for the Credit for the Elderly or the Disabled, Mr. Yogi must have

Retired on permanent and total disability.

Received no other income than taxable pension distributions and/or Social Security benefits.

Reached mandatory retirement age.

Been temporarily disabled for at least 3 out of the last 10 years.

67. Which of the following is an eligible child for purposes of the Adoption Credit?

An infant child
A 15-year-old child
A 19-year-old mentally handicapped child

I only.

II only.

I and II only.

I, II, and III.

68. Which of the following are expenses that are NOT eligible for the Adoption Credit?

Adoption fees.

Court costs.

Attorney fees.

Surrogate parenting arrangement costs.

69. Mr. and Mrs. Hall adopted a special-needs child in the current year. During the year, the Halls’ qualified expenses were $18,280, and their adjusted gross income was $271,190. What is the amount of the Halls’ Adoption Credit for the current year?

$12,096

$17,280

$5,184

$18,280

70. Mr. and Mrs. Greg adopted a child in the current year. During the year, the Gregs’ qualified adoption expenses were $26,000, and they had an AGI of $301,190. What is the Gregs’ Adoption Credit for 2025?

$8,640

$17,280

$26,000

71. Which of the following is an expense that is eligible for the Adoption Credit?

Expenses incurred for attorneys during the course of the adoption.

Costs associated with a surrogate parenting arrangement.

Expenses incurred in violation of state or federal law.

Expenses incurred in connection with the adoption of a child of the taxpayer’s spouse.

72. A taxpayer paid $7,000 of interest in 2025 on the mortgage given upon acquiring her first home. The taxpayer received a mortgage credit certificate (MCC), which specifies a 30% credit rate. How much of a credit is the taxpayer entitled to in 2025?

$2,000

$2,100

$5,000

$7,000

73. What are the limits for the rate specified by the mortgage credit certificates (MCCs)?

Not less than 10% and not greater than 30%.

Not less than 10% and not greater than 40%.

Not less than 10% and not greater than 50%.

Not less than 10% and not greater than 60%.

74. To compute the Minimum Tax Credit (MTC), the taxpayer should

Recompute the most recent year’s alternative minimum tax and subtract the carryover MTC.

Recompute the most recent year’s alternative minimum tax with the adjustment for the tax amount, and subtract the carryover MTC.

Recompute the most recent year’s alternative minimum tax without adjustment for certain exclusion items, and add the carryover MTC.

Recompute the most recent year’s alternative minimum tax with adjustment for certain exclusion items, and add the carryover MTC.

75. Which of the following applies to the allowable credit for prior-year minimum tax?

Any unused portion may not be carried forward.

It is allowed in full against the current year’s tax.

It may only be carried forward for 5 years.

The allowable credit cannot reduce the current year’s tax below the current year’s tentative minimum tax.

76. Michael had to pay $4,000 alternative minimum tax last year. This year, his regular income tax is $60,000 and tentative minimum tax on his income is $57,000, so he will pay only regular income tax. How much credit for prior year minimum tax can he take this year?

$4,000

$2,000

$3,000

77. In Year 1, Ron and Cindy had an alternative minimum tax (AMT) liability of $19,000. This was the first tax year in which they had ever paid the AMT. They recomputed the AMT amount using only exclusion preferences and adjustments; the recomputation resulted in a $8,500 AMT liability. In Year 2, Ron and Cindy had a regular tax liability of $45,000. Their tentative minimum tax liability was $42,000. What is the amount of Ron and Cindy’s Minimum Tax Credit (MTC) carryover to Year 2? What is the amount of the carryover that can be used in Year 2?

Carryover to Year 2

$19,000

Carryover Used

$3,000

Carryover to Year 2

$19,000

Carryover Used

$8,500

Carryover to Year 2

$10,500

Carryover Used

$3,000

Carryover to Year 2

$8,500

Carryover Used

$8,500

78. Which of the following is NOT a test to determine if a child is a qualifying child for the Earned Income Credit (EIC)?

Relationship.

Age.

Residency.

Support.

79. Which of the following conditions would NOT prevent an individual from qualifying for the Earned Income Credit for the year 2025?

Married filing separately filing status.

Being a qualifying child of another person.

Being age 25.

Investment income of more than $11,950.

80. For purposes of claiming the Earned Income Credit, a qualifying child could be any of the following EXCEPT

Your 20-year-old unemployed child.

Your child who is less than 19 years old.

Your 22-year-old grandson who is a full-time student.

Your 40-year-old permanently disabled stepson.

81. For the current year, for purposes of the Earned Income Credit, which of the following amounts qualifies as earned income?

Earnings from self-employment.

Excluded combat-zone pay.

Unemployment compensation.

Value of meals or lodging provided by an employer for the convenience of the employer.

82. Which of the following items is considered earned income for the Earned Income Credit?

Welfare benefits.

Earnings from self-employment.

Social Security benefits.

Veterans’ benefits.

83. All of the following statements with respect to qualifications for the Earned Income Credit are true EXCEPT

An individual must not have disqualified income in excess of $11,950.

The taxpayer must be eligible to work in the United States.

An individual must have a qualifying child living with him or her for more than 6 months.

An individual must have earned income during the year.

84. Which of the following taxpayers may claim the Earned Income Credit for 2025?

Ginger, 50 years of age, who has a qualifying child (QC) for whom she provides sole support. She received $15,000 in Social Security benefits and $500 in interest income in 2025.

Cinnamon, 42 years old, who was divorced the entire year. She had investment income of $8,000 and had W-2 wages of $10,000.

Woody, age 51, who is single and lived in a homeless shelter during 2025 and received retirement benefits of $13,000.

Cherrie, age 35, who is single and has one qualifying child. She had $47,000 in wages, and her adjusted gross income is $53,000.

85. You and your son lived with your mother all year. You are 25 years old. Your only income was $9,300 from a part-time job. Your mother’s adjusted gross income was $15,000. All her income was from her job. Which of the following is true?

Your son does not meet the conditions to be a qualifying child for purposes of the Earned Income Credit for both you and your mother.

You can claim the Earned Income Credit.

You are a qualifying child for your mother.

The person with the higher AGI must claim the credit.

86. Rose, a single parent, has two children ages 10 and 13. She earned $32,000 in 2025, and her investments earned $2,000 interest income. Taxable income on her 2025 return was $24,000. After applying her withholding, Rose’s tax due was $1,000. Using the following Earned Income Credit information, determine Rose’s balance due/overpayment for 2025:

Credit figured using $34,000 adjusted gross income = $4,909
Credit figured using $32,000 earned income = $5,330
Credit figured using $26,000 taxable income = $6,594

$3,909 overpayment (refund).

$5,594 overpayment (refund).

$4,330 overpayment (refund).

$0, carryover $3,909 credit to next year.

87. Which of the following items is considered earned income for the Earned Income Credit?

Self-employment income earned from a sole proprietorship.

Interest on savings accounts.

Capital gains on stock sales.

Rental income for which no services are performed.

88. All of the following statements regarding qualification for the Earned Income Credit are true EXCEPT

The tax return claiming the credit must cover a full 12 months (unless a short period return is required due to the taxpayer’s death).

The taxpayer’s principal residence must be in the United States for more than one-half of the taxable year.

The taxpayer’s filing status must be either married filing a joint return or head of household.

The taxpayer must have received earned income during the year.

89. All of the following individuals, who meet the income and residency requirements, qualify for the Earned Income Credit EXCEPT

A 19-year-old head of household with a qualifying child.

A 45-year-old single individual.

A 22-year-old married individual whose spouse is 18 years old.

A 60-year-old married individual.

90. Which of the following is qualified income for purposes of the Earned Income Credit?

Net capital gain income.

Net rent and royalty income.

Income earned from part-time employment.

Tax-exempt interest income.

91. Mike, age 30, and his daughter lived with Mike’s mother during the year. Mike’s earned income and adjusted gross income for the year was $6,000. The mother’s adjusted gross income for the year was $60,000. Assuming that the daughter is a qualifying child for both Mike and his mother, which of the following statements is true with regard to the Earned Income Credit?

Since the daughter is a qualifying child for both Mike and his mother, they both can claim the credit providing they allocate the earned income.

Mike can claim the credit since he is the parent, and his mother’s adjusted gross income exceeds the limit for the year.

Mike’s mother can claim the credit because her adjusted gross income is more than Mike’s.

Neither can claim the credit.

92. Charles’s parents are divorced. He lives with each parent 6 months out of the year. Last year, his father had an adjusted gross income of $80,000, and his mother had an adjusted gross income of $70,000. Which parent has the right to claim Charles as a dependent?

Mother.

Father.

Both.

Neither.

93. The Minimum Tax Credit (MTC) makes use of exclusionary items in its computations. Which of the following is NOT an exclusion item used for this purpose?

Depreciation.

The standard deduction.

Tax-exempt interest from bonds.

Depletion.

94. Which of the following statements is a requirement for eligibility of the Premium Tax Credit (PTC)?

Insurance purchased through an employer.

Eligible for coverage through an employer.

Filing status other than MFS.

Claimed as a dependent of another taxpayer.

95. Two taxpayers married on November 30. That same year, the husband enrolled in an accredited college to further his career and subsequently received a Form 1098-T, Tuition Statement. The wife was employed with an income of $45,000 and paid for the husband’s education expenses. The taxpayers did not receive any other income for the year. Based on their circumstances, what is the correct method to report the education credit?

Taxpayers must file a joint return to claim an education credit.

Based on the wife’s AGI, they do not qualify to claim an education credit.

Husband is ineligible to claim an education credit because the wife paid his education expenses.

Wife should report nonqualified education expenses on Form 8863, Education Credits (American Opportunity Tax and Lifetime Learning Credits).

96. Which of the following statements is correct regarding Form 1095-A, Health Insurance Marketplace Statement?

Taxpayers do not need Form 1095-A to complete Form 8962, Premium Tax Credit, to reconcile advance payments of the Premium Tax Credit or claim the Premium Tax Credit on their tax return.

Taxpayers will receive Form 1095-A to complete Form 8962, Premium Tax Credit, if they have been covered by an employer insurance plan for the entire year.

Taxpayers will use Form 1095-A to complete Form 8962, Premium Tax Credit, to reconcile advance payments of the Premium Tax Credit or claim the Premium Tax Credit on their tax return.

Taxpayers will attach a Form 1095-A to their tax return to reconcile advance payments of the Premium Tax Credit or claim the Premium Tax Credit on their return.

97. Which of the following situations will disqualify a single individual from claiming the Premium Tax Credit?

Marriage to an individual enrolled in a qualified health plan.

Household income that is 390% of the federal poverty line.

Inheritance of $1,100,000 non-income producing vacation home.

Being claimed as a dependent on the individual’s parent’s joint tax return.

98. The taxpayer has a child under the age of 24 who is a full-time student in their second year of college. The student will be claimed as a dependent on the taxpayer’s return.

The student’s educational expenses included $8,000 for tuition and $4,000 for room and board.

The student received a $5,000 scholarship for tuition use only, as well as an additional $2,500 scholarship to pay any of the student’s college expenses. The taxpayer paid the remaining $4,500.

Which of the following statements is correct, based on the information above?

The student can claim the American Opportunity Tax Credit (AOTC) on the student’s return for tuition expenses of $3,000 and should report the additional $2,500 scholarship as income.

The taxpayer can claim the American Opportunity Tax Credit on the taxpayer’s return for tuition expenses of $3,000, and the student should report the additional $2,500 scholarship as income.

The taxpayer can claim the American Opportunity Tax Credit on the taxpayer’s return for tuition expenses of $3,000, and neither the taxpayer nor the student should report any of the additional $2,500 scholarship as income.

The taxpayer can claim the American Opportunity Tax Credit on the taxpayer’s return for tuition expenses of $3,000 and should report the additional $2,500 scholarship as income.

99. Juliet Corporation has U.S. taxable income of $800,000, of which 25% is from a foreign division. Juliet paid $45,000 of foreign income taxes on the income of the foreign division. Assuming Juliet’s U.S. income tax for the current year before credits is $168,000, its maximum Foreign Tax Credit for the current year is

$123,000

$40,000

$42,000

$3,000

100. The following information pertains to Bald Corporation’s operations for the current year:

Worldwide taxable income	$300,000
U.S. source taxable income	180,000
U.S. income tax before Foreign Tax Credit	63,000
Foreign nonbusiness-related interest earned	30,000
Foreign income taxes paid on nonbusiness-related interest earned	6,000
Other foreign-source taxable income	90,000
Foreign income taxes paid on other foreign-source taxable income	30,000

What amount of Foreign Tax Credit may Bald claim for the current year?

$18,900

$24,900

$36,000

$25,200

101. Smithco, Inc., a domestic corporation, was paid $20,000 of the total of $100,000 in dividends paid by a foreign corporation this year. Smithco owned 20% of the foreign corporation’s stock. The foreign corporation paid $35,000 in foreign taxes and had accumulated profits of $120,000 after payment of its foreign taxes for the last 11 years. Smithco also had $1,000 in taxes withheld by the foreign country on the dividend. Smithco has a Foreign Tax Credit before limitation of

$1,000

$5,833

$6,833

$8,000

102. How may taxes paid by an individual to a foreign country be treated?

As a miscellaneous itemized deduction.

As a credit against federal income taxes due.

As an adjustment to gross income.

As nondeductible.

103. During the current year, Bold, Inc., had worldwide taxable income of $2,100,000 and a tentative U.S. income tax of $270,000. Bold’s taxable income from business operations in Colombia was $700,000, and foreign income taxes imposed were $140,000 stated in U.S. dollars. How much should Bold claim as a credit for foreign income taxes on its U.S. income tax return in the current year?

$140,000

$90,000

$270,000

104. Trapezoid, Inc., had worldwide taxable income in the current year of $2.5 million. Seventy-five percent of this was earned within the United States, with the remainder being earned in Laos. Trapezoid paid $10,000 in foreign income taxes on $200,000 of nonbusiness-related interest earned in Laos. Trapezoid also paid $150,000 in taxes to Laos on foreign source business income of $425,000. Trapezoid’s tentative U.S. income tax was $525,000. What is Trapezoid’s Foreign Tax Credit in the current year?

$89,250

$99,250

$160,000

$131,250

105. Judy purchased her first home in January of the current year. She obtained a new mortgage and paid $6,000 of interest during the current year. Her state has elected to issue mortgage credit certificates in lieu of mortgage subsidy bonds. If Judy receives a mortgage credit certificate specifying a 20% credit rate, how much are her income tax credit and interest deduction?

Credit

$1,200

Deduction

Credit

$1,200

Deduction

$4,800

Credit

$1,200

Deduction

$6,000

Credit

$2,000

Deduction

$4,000

106. In the current year, Sal purchased a new home by obtaining a mortgage. He received a credit certificate from his bank specifying a 25% interest rate. His total mortgage interest paid for the year was $20,000. Sal’s tax liability for the year is $7,000. How much income tax credit can Sal get on his home mortgage interest?

$7,000

$5,000

$2,000

107. Which of the following is NOT a requirement for a student to be eligible for the American Opportunity Tax Credit?

Full-time enrollment.

One-half time enrollment.

Student must be enrolled in a degree program.

Married taxpayers must file a joint return to be eligible.

108. Which of the following are eligible expenses for the American Opportunity Tax Credit?

Tuition and fees required for enrollment
Course materials
Room and board

I only.

I and II only.

II and III only.

I, II, and III.

109. Joe and Mary Day’s daughter Julie is a first-year student in college during 2025. Joe and Mary, who filed jointly, had an adjusted gross income of $128,100, and Julie’s eligible expenses were $8,000. What is the amount of the American Opportunity Tax Credit that the Days may use in 2025?

$2,000

$2,500

$8,000

110. Mr. and Mrs. X had adjusted gross income of $172,000 in 2025. Their daughter’s eligible education expenses for her first year of college were $4,500 in 2025. What is the amount of American Opportunity Tax Credit that Mr. and Mrs. X may use in 2025?

$1,000

$1,500

$2,500

111. Which of the following statements is false for purposes of the Lifetime Learning Credit?

The Lifetime Learning Credit is available for the taxpayer’s spouse.

The Lifetime Learning Credit provides a 20% credit of qualified tuition expenses paid by the taxpayer.

A student in a continuing professional education program is eligible for the Lifetime Learning Credit.

The Lifetime Learning Credit is subject to a lifetime limit of $25,000.

112. Taylor and Graham Wood’s son Corey is a first-year college student in 2025. Taylor and Graham have an adjusted gross income of $120,000, and Corey has eligible education expenses of $7,000 in 2025. What amount can the Woods claim for the American Opportunity Tax Credit in 2025?

$7,000

$5,000

$2,500

$2,000

113. Mr. and Mrs. Ring, who file a joint tax return, have adjusted gross income of $110,000 for 2025. Their daughter Vicky was in her fifth year of college in 2025. The expenses incurred in 2025 were $20,000 for tuition. What is the amount of Lifetime Learning Credit that the Rings may claim in 2025?

$20,000

$10,000

$4,000

$2,000

114. Which of the following are expenses that are NOT eligible for the Adoption Credit?

Adoption fees.

Court costs.

Attorney fees.

Child care expenses.

115. Mr. and Mrs. Clegg adopted a child in the current year. During the year, the Cleggs’ qualified adoption expenses were $18,000, and they had an AGI of $200,000. What is the Cleggs’ Adoption Credit for 2025?

$16,810

$17,280

$18,000

116. Mr. and Mrs. Ball adopted a child in the current year. During the year, the Balls’ qualified adoption expenses were $18,000, and their adjusted gross income was $264,190. What is the amount of the Balls’ Adoption Credit for the current year?

$15,120

$18,000

$17,280

$19,440

117. Fred and Tonya adopted a special-needs child in 2025. Their AGI was $200,000, and they incurred qualified adoption expenses of $18,000. What is their allowable Adoption Credit for the current year?

$17,280

$18,000

$16,810

$8,640

118. Tom, age 45, contributed $1,000 to his 401(k) in the current year. Additionally, Tom rolled over $25,000 from a separate 401(k). Tom had AGI of $28,000. If Tom files as a single taxpayer, what amount of Saver’s credit may he claim for the year?

$100

$2,400

$2,500

$2,600

119. Mark and Rita, both age 50, are married and file a joint tax return in the current year. They have a combined AGI of $55,000 and each contributed $1,500 to their IRAs. Assuming all requirements are met, what amount of the Retirement Savings Contributions Credit may they claim in the current year?

$300

$1,500

$3,000

120. For 2025, Mike and Denise, calendar-year taxpayers, had gross income comprised of the following:

Wages received as a farm employee	$26,000
Gross income from Schedule F
dairy operations	40,000
Distributable share of an S corporation’s
gross income from farming	12,000
Long-term capital gains from stock sales	18,000
Short-term capital losses from stock sales	(21,000)

They have made no estimated tax payments as of December 31, 2025, and the withholding from wages is not sufficient to relieve them from the estimated tax penalty. Which of the following statements is true if they make an estimated tax payment by January 15, 2026?

They will avoid the estimated tax penalty since they are qualified farmers.

They will avoid the estimated tax penalty since all of their earned income is from farming activities.

They will not avoid the estimated tax penalty since their farm income does not comprise two-thirds of their gross income.

They can avoid the estimated tax penalty only by filing their return by March 3, 2026, and paying all the tax due.

121. All of the following individuals file their income tax returns as single. Which one is required to make estimated tax payments for 2025?

Ms. Kirkland, who had no tax liability for 2024, expects to owe $2,500 self-employment tax for 2025 (she has no withholding tax or credits).

Mr. Brady, who had a $2,000 tax liability for 2024, expects a $2,100 tax liability for 2025 and withholding of $1,900.

Ms. Evans, who had no tax liability for 2024, expects a tax liability of $4,900 for 2025, with $3,500 withholding.

Mr. Jones, who had a 2024 tax liability of $9,500, expects a tax liability of $12,400 for 2025, with $8,500 withholding.

122. Violet made no estimated tax payments for 2025 because she thought she had enough tax withheld from her wages. In January 2026, she realized that her withholding was $2,000 less than the amount needed to avoid a penalty for the underpayment of estimated tax so she made an estimated tax payment of $2,500 on January 10. Violet filed her 2025 return on March 1, 2026, showing a refund due her of $100. Which of the following statements is NOT true regarding the estimated tax penalty?

Violet will not owe a penalty for the quarter ending December 31, 2025, because she made sufficient payment before January 15, 2026.

Violet will not owe a penalty for any quarter because her total payments exceed her tax liability.

Violet could owe a penalty for one or all of the first three quarters even though she is due a refund for the year.

If Violet owes a penalty for any quarter, the underpayment will be computed from the date the amount was due to the date the payment is made.

123. An employee who has had Social Security tax withheld in an amount greater than the maximum for a particular year may claim

Such excess as either a credit or an itemized deduction, at the election of the employee, if that excess resulted from correct withholding by two or more employers.

Reimbursement of such excess from his or her employers if that excess resulted from correct withholding by two or more employers.

The excess as a credit against income tax, if that excess resulted from correct withholding by two or more employers.

The excess as a credit against income tax, if that excess was withheld by one employer.

124. Ms. B filed her Year 1 Form 1040 on April 15, Year 2, but did not pay her tax liability of $3,000. On June 15, Year 3, she paid the tax in full. In Year 4, Ms. B discovered additional deductions for Year 1 that will result in a refund of $1,000. To receive her refund, Ms. B must file an amended income tax return by (assuming no relevant days are Saturdays, Sundays, or holidays)

April 15, Year 5.

June 15, Year 5.

April 15, Year 6.

June 15, Year 6.

125. Marge Godfrey sold her investment property March 30, 2025, at a gain of $50,000. Marge expects to owe $10,000 in additional income taxes on this sale. She had a tax liability of $900 for 2024 and will have no withholding for 2025. Ignoring Saturdays, Sundays, and holidays, Marge’s first estimated tax payment is due on what date?

April 30, 2025.

April 15, 2025.

January 31, 2026.

June 15, 2025.

126. Mr. Bagley, a self-employed musician, timely filed his Year 1 income tax return, which showed an AGI of $180,000 and total tax of $45,000. He expects his Year 2 total tax to be $70,000. What is his required payment through withholding and estimated tax for Year 2?

$63,000

$49,500

$45,000

127. Dr. Steve and Joyce are married and have total income of $200,300 and itemized deductions of $31,500, leaving estimated taxable income of $168,800. Assume that for 2025 the tax on $168,800 would be $35,403. They have withholding taxes of $30,000 during the year. In 2024, they paid a total of $42,000 in taxes for the year and had adjusted gross income of $185,000. For 2025, they would need to make

No estimated tax payments since they have withholding taxes.

Estimated payments of $1,863.

Estimated payments of $5,403.

Estimated payments of $12,000.

128. Mr. Berry, a self-employed musician, timely filed his 2024 income tax return, which showed an AGI of $220,000 and total tax of $65,000. He expects his 2025 total tax to be $82,000. What is his required payment through withholding and estimated tax for 2025?

$82,000

$71,500

$65,000

$73,800

129. For 2025, Robert and Martha, calendar-year taxpayers, received all of their gross income of $75,000 from their dairy farm. As of December 31, 2025, they had not made any estimated tax payments for 2025. Which of the following will allow them to avoid the estimated tax penalty (ignoring Saturdays, Sundays, or holidays)?

Make one estimated tax payment by January 15, 2026.

File their 2025 federal income tax return by March 15, 2026.

File their 2025 federal income tax return by April 15, 2026, pay all of the tax, and attach a statement that they are qualified farmers.

File their 2025 federal income tax return by March 15, 2026, and pay all the tax due.

130. Sue must make estimated tax payments of $4,000 for the tax year. She makes the following payments:

1st payment - credit of $1,000 from her previous year refund
2nd payment - $500 on April 20th
3rd payment - $500 on May 31st
4th payment - $1,000 on August 15th
5th payment - $500 on October 15th
6th payment - $500 on December 30th

Which of the following is true?

She has not made timely payments because her 2nd and 3rd payments were not made by April 15th.

She has not made timely payments because her 4th payment was not made by June 15th.

She has made timely estimated payments.

She has not made any timely payments because none of the payments were made by the required IRS schedule.

131. A taxpayer does NOT have to pay estimated taxes for the current year if

The taxpayer’s tax liability for the previous year was less than $1,000.

The taxpayer’s withholding covers 90% of the tax liability for the previous year.

The taxpayer’s Earned Income Credit will exceed his or her tax liability for the current year.

All of the answers are correct.

132. A taxpayer had adjusted gross income of $98,000 and a total tax liability in 2024 of $20,000. In 2025, the taxpayer has a tax liability of $25,000. The taxpayer’s withholding was increased to $23,500. He will file his tax return for 2025 on April 10, 2026. To avoid the underpayment of estimated tax penalty, the taxpayer must (ignoring Saturdays, Sundays, or holidays)

Pay the additional $1,500 due by April 15, 2026.

Pay an additional $1,500 by January 15, 2026.

File an annualized estimated tax computation.

Do nothing, as he has satisfied the minimum tax payment requirements.

133. Which statement pertaining to estimated tax payments is NOT correct?

An individual, whose only income is from self-employment, will have to pay estimated payments.

If insufficient tax is paid through withholding, estimated payments may be necessary.

Estimated tax payments are required when the withholding taxes are greater than the overall tax liability.

Estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well.

134. All of the following individuals file their income tax returns as single. Which one is required to make estimated tax payments for Year 2?

Ms. Streams, who had no tax liability for Year 1, expects to owe $1,200 self-employment tax for Year 2 (she has no withholding tax or credits).

Mr. Rush, who had a $1,000 tax liability for Year 1, expects a $1,100 tax liability for Year 2 and withholding of $900.

Ms. Givonni, who had a $4,000 tax liability for Year 1, expects a tax liability of $4,900 for Year 2 with $3,900 withholding.

Mr. Charles, who had a Year 1 tax liability of $10,000, expects a tax liability of $19,500 for Year 2, with $10,500 withholding.

135. For estimated tax purposes, the calendar year is divided into four payment periods. Which of the following payment periods is incorrect?

January 1 through March 31.

April 1 through June 30.

June 1 through August 31.

September 1 through December 31.

136. For Year 2, all of the following situations qualify as exceptions to the penalty for underpayment of estimated tax EXCEPT

Total tax shown on the return minus withholdings is less than $1,000.

Estimated tax payments were 90% of that shown on the Year 1 return, and last year’s AGI was $160,000.

Estimated payments were 100% of that shown on the Year 1 return, and last year’s AGI was $120,000.

The taxes shown as owed on the return are no more than 10% of the total Year 2 tax, all required estimated tax payments were made on time, and Year 1 AGI was $100,000.

137. Charles is a self-employed attorney and files a joint return. He reported AGI of $80,000 and taxable income of $60,000 in Year 1, and he paid a tax liability of $12,000 after credits. In Year 2, he expects his AGI to increase about 25%. In setting up his estimated tax payments so as to avoid any penalty for underpayment of his Year 2 liability, Charles should

Pay quarterly installments of 25% of $12,000.

Make only one estimated payment late in Year 2 when he can more clearly estimate his Year 2 income.

Pay at least 25% more tax each quarter than he paid in Year 1.

Pay quarterly installments of 90% of 25% of $12,000.

138. Krete, an unmarried taxpayer with income exclusively from wages, filed her initial income tax return for the 2025 calendar year. By December 31, 2025, Krete’s employer had withheld $16,000 in federal income taxes, and Krete had made no estimated tax payments. On April 15, 2026, Krete timely filed an extension request to file her individual tax return and paid $300 of additional taxes. Krete’s 2025 income tax liability was $16,500 when she timely filed her return on April 30, 2026, and paid the remaining income tax liability balance. What amount is subject to the penalty for the underpayment of estimated taxes?

$200

$500

$16,500

139. Ms. W, who is single, determined that her total tax liability for Year 2 would be $10,000. W is required to make estimated tax payments if

Her Year 1 tax liability was $12,000 and her Year 2 income tax withholding will be $9,750.

Her Year 1 tax liability was $12,000 and her Year 2 income tax withholding will be $9,000.

Her Year 1 tax liability was $5,000 and her Year 2 income tax withholding will be $6,000.

Her Year 1 tax liability was $9,000 and her Year 2 income tax withholding will be $8,500.

140. Chris Baker’s adjusted gross income on her 2024 tax return was $160,000, which covered a 12-month period. For the 2025 tax year, Baker may avoid the penalty for the underpayment of estimated tax if the timely estimated tax payments equal the required annual amount of

90% of the tax on the return for the current year, paid in four equal installments
110% of prior year’s tax liability, paid in four equal installments

I only.

II only.

Either I or II.

Neither I nor II.

141. Sam Johnson, a calendar-year taxpayer, applied for and received an extension for filing his Year 1 tax return. Mr. Johnson filed his tax return on June 2 of Year 2 and paid the balance due. The return reflected a tax liability of $50,000 and estimated tax payments made timely of $45,000. Based on these facts, Mr. Johnson owes

Failure toFile Penalty

Failure toPay Penalty

$50

Failure toFile Penalty

Failure toPay Penalty

$25

Failure toFile Penalty

$500

Failure toPay Penalty

$50

Failure toFile Penalty

$250

Failure toPay Penalty

$25

142. Susan, a single filer, started a home-based dress business on March 1, Year 2. She was an employee and paid income taxes of $6,000 for Year 1. Susan’s business had net income of $0, $9,000, $11,000, and $15,000 respectively for each of the calendar quarters in Year 2. Susan’s total tax liability for the year was $5,500. Her first payment of estimated taxes is due

April 15.

No estimates due if Susan files by January 31, Year 3.

June 15.

Susan’s tax liability for Year 1 exceeds 90% of her Year 2 tax liability so no estimates are required to be paid.

143. William and Nancy Bonnie file jointly for 2025, and each works for two employers. William earned $10,000 from the first employer and $30,000 from the second. Nancy earned $68,000 from the first employer and $108,900 from the second. Each employer withheld Social Security taxes. What is the amount of William’s and Nancy’s credits for the excess Social Security taxes paid in 2025?

William

Nancy

$49.60

William

$49.60

Nancy

William

Nancy

William

$2,529.60

Nancy

$2,529.60

144. Pat Garrett worked for two different employers during 2025. He earned $62,800 from the first employer and $114,900 from the second. Each employer withheld Social Security taxes. What is the amount of Pat Garrett’s credit for the excess Social Security taxes paid in 2025?

$99.20

$122.40

$1,600

145. An employer must deduct and withhold Social Security tax up to what amount of an employee’s wages?

$147,000

$160,200

$168,600

$176,100

146. Elizabeth, a calendar-year taxpayer, filed her Year 1 individual return on March 15, Year 2. She did not pay her Year 1 income tax liability in full until March 30, Year 3. If Elizabeth discovers a mistake on her Year 1 return, what is the last day she may file a claim for refund?

March 15, Year 4.

March 15, Year 5.

March 30, Year 5.

April 15, Year 5.

147. If an individual paid income taxes in the current year through withholding but did not file a current-year return because his or her income was insufficient to require the filing of a return, the deadline for filing a refund claim is

2 years from the date the tax was paid.

2 years from the date a return would have been due.

3 years from the date the tax was paid.

3 years from the date a return would have been due.

148. Ms. Smith, a calendar-year taxpayer, made estimated tax payments of $1,000 and got an extension of time to October 15, Year 2, to file her Year 1 tax return. She filed her return on October 1, Year 2. She filed an amended return on December 11, Year 3, and paid an additional $400 tax due on that date. On November 26, Year 5, Ms. Smith claimed a refund of $800 on the Year 1 return amended in December Year 3. What is the maximum amount she could receive?

$400

$800

$1,000

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