HR BLOCK Final Test Review (ITC 2025)

Which of the following is a requirement for all taxpayers who want to claim the EIC? Live in the U.S. for more than half a year. Have a valid social security number. Have a qualifying child dependent. Have AGI less than $21,430 ($27,380 MFJ). - Have a valid social security number. A combined due diligence penalty of $2,180 would indicate a penalty for which of the following? EIC, CTC/ODC/ACTC, and head of household. EIC, AOTC, and CTC/ODC/ACTC. EIC, AOTC, CTC/ODC/ACTC, and head of household. EIC, PTC, CTC/ODC/ACTC, and head of household. - EIC, AOTC, CTC/ODC/ACTC, and head of household. When dependent care benefits are withheld from a taxpayer's income, where are they reported by the employer? Form 2441. Form 1040. Box 10 of Form W-2. The employer is not required to report them. - Box 10 of Form W-2. All of the following are due diligence requirements a tax preparer must meet for EIC, AOTC, CTC/ODC/ACTC, and HOH, EXCEPT: Investigate and verify the accuracy of information the taxpayer provides to show eligibility for EIC, AOTC, CTC/ODC/ACTC, and HOH. Complete all worksheets used to compute the credits. If the worksheet is completed by hand, keep a copy in the taxpayer's client file. Maintain a copy of documents provided by the taxpayer that the tax preparer relied on when determining credit eligibility. Then record the date the information was obtained and the name of who provided the information. When information provided by the taxpayer appears to be incorrect, inconsistent, or incomplete, the tax preparer must make additional inquiries to determine if the taxpayer is eligible for the benefit. Then document both the questions asked and responses provided. - Investigate and verify the accuracy of information the taxpayer provides to show eligibility for EIC, AOTC, CTC/ODC/ACTC, and HOH. When a taxpayer receives Form 1099-R with no amount entered in box 2a and code 7 entered in box 7, the entire distribution: Could be partly or entirely taxable. Is never taxable. Is an early distribution and taxable. Has been rolled into a traditional IRA or into another qualified plan. - Is never taxable. What is the maximum amount of the American Opportunity Tax Credit a taxpayer could receive per student? $1,650 $1,800 $2,000 $2,500 - $2,500 Which test for a qualifying child does NOT need to be met in order for the child to be a qualifying person for purposes of Earned Income Credit (EIC)? Age. Relationship. Residency. Support. - Support. Which of the following expenses qualifies for an education credit in 2021? Tuition payments. The taxpayer didn't receive scholarships, grants, or other nontaxable benefits. Fees for an optional student activity. Cost of student medical fees. Tuition payments. The taxpayer received a nontaxable grant, which covered the entire tuition expense. - Employer-provided dependent care assistance: May be used for the Child and Dependent Care Credit. Is subtracted from the total expenses for child or dependent care on Form 2441. Is included in wages on Form W-2. Is not reported to the IRS. - Which of the following is NOT a percentage of social security benefits subject to federal tax? Up to __________. 0% 50% 85% 100% - 100% What is the maximum amount of the lifetime learning credit? $1,100 per return. $1,650 per return. $2,000 per return. $2,500 per return. - $2,000 per return. Employer-provided dependent care assistance: It may be used for the Child and Dependent Care Credit. It is subtracted from the total expenses for the child or dependent care on Form 2441. It is included in wages on Form W-2. It is not reported to the IRS. - Earned Income - Any income (wages/salary) that is generated by working Unearned Income - include interest income, dividends, rents and royalties, pensions, alimony, and unemployment income. If an employee thinks their Form W-2 is incorrect, what should they do? - If the taxpayer's name, social security number, earnings, or withholdings are incorrect, the taxpayer should notify their employer and request a corrected Form W-2. The employee should request that the employer update their records and verify that the earnings were properly credited with the Social Security Administration. However, the taxpayer is still responsible for filing a timely tax return. If the employee's attempts to obtain a corrected Form W-2 from their employer are not successful, the taxpayer should notify the IRS. It may be necessary to prepare a substitute Form W-2. Is interest received on U.S. Treasury obligations taxable on state and/or local returns? - No. Interest on U.S. Treasury obligations is exempt from state and local tax by federal law. Is municipal bond interest taxable on a federal return? - No, the federal government does not tax municipal bond interest. How is interest income reported to the taxpayer? - Interest income is reported to the taxpayer on Form 1099-INT or a substitute statement. What information do you need to know to determine whether a nondependent taxpayer is required to file a return? - For tax purposes, when is a person's marital status determined? - On the last day of the tax year, or the date of death. How much is added to the standard deduction if the taxpayer (or spouse) is age 65 or older, or blind? - $1,350 for married taxpayers and qualifying widow(er)s, or $1,700 for those filing single or head of household. What is the personal exemption amount for 2021? - There is no personal exemption for 2021. A personal exemption was an amount previously allowed by law to reduce income that would otherwise be taxed. The Tax Cuts and Jobs Act of 2017 repealed this deduction beginning in 2018. How is the gross income filing requirement determined for most nondependent taxpayers? - The taxpayer's standard deduction, including the additional amounts for age. However, for married filing separately, or married filing jointly when the spouses did not live together at the end of the year, the amount is $5. What is the difference between injured spouse allocation and innocent spouse relief? - The IRS provides an injured spouse allocation for the taxpayer to protect their portion of a refund from a spouse's past-due federal income tax, unpaid student loans, unpaid child and spousal support, or state income tax. The IRS provides innocent spouse relief to taxpayers who file a joint return and later learn that their spouse has underestimated income (or overstated a credit or deduction) on the return. What document will the taxpayer receive from their employer reporting disability pension payments? - The income is reported on Form 1099-R. What types of income must be reported on Schedule 1 (Form 1040) and then reported on Form 1040? - Gambling winnings, alimony, jury duty pay, canceled debts, and hobby income are some examples of income that must be reported on Schedule 1 (Form 1040) and then reported on Form 1040. What are the adjustments that can be claimed on Schedule 1 (Form 1040)? - Some examples of adjustments that can be claimed on Schedule 1 are: Educator expense deduction. The health savings account (HSA) deduction. Moving expenses for members of the military. Self-employment tax deduction. Self-employed health insurance deduction. Penalty on early withdrawal of savings. Alimony payments. IRA deduction. Student loan interest deduction. How much may an eligible educator deduct for qualified classroom expenses as an adjustment to income? - Up to $250 per eligible educator. Married taxpayers filing a joint return who are both eligible educators may each claim the $250 deduction, totaling $500. Who is an eligible educator? - Someone who worked at least 900 hours during the school year as a teacher, teacher's aide, counselor, or principal in an elementary or secondary school. Where is the educator expense deduction reported? - Educator expenses are reported on Schedule 1, Additional Income and Adjustments to Income, line 11. What is a qualified student loan? - A loan used to pay qualified education expenses. Credit card debt may be included, provided the card was used exclusively to pay for qualified expenses. Money borrowed from a related person is not a qualified student loan. What three requirements must be met for an individual to be claimed as either a qualifying child or a qualifying relative? - To be either a qualifying child or qualifying relative, they must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada, or Mexico; they cannot file a joint return (unless solely to claim a refund of taxes paid); and the taxpayer claiming the dependent must not be a dependent of another taxpayer What are the five tests for a qualifying child? - 1. Relationship test. 2. Age test. 3. Residency test. 4. Support test. 5. Joint return test. How can a married individual meet the joint return test to remain a qualifying child? - They can meet this test by not filing a joint return with their spouse, or they can file a joint return with their spouse if they are filing only to claim a refund of any taxes withheld. What four tests must be met for an individual to be considered a qualifying relative? - 1. Not a qualifying child of someone else. 2. Relationship OR member of the household for the entire year. 3. Gross income. 4. Support. How can the gross income test for a qualifying relative be satisfied? - The qualifying relative's gross income must be less than $4,300. When determining the gross income, tax-exempt income, such as certain social security benefits, is not included. What is the purpose of Form 2120, Multiple Support Declaration? - If two or more persons combined provided over one-half of a person's support, they may together agree to allow any one of them who contributed at least 10% of the support to claim the exemption. A statement waiving the right to claim the dependency exemption should be signed by each contributor who is not claiming the exemption and retained by the one who is. Form 2120 is attached to the return of the taxpayer claiming the exemption. How much is the Child Tax Credit worth? - Up to $3,600 per qualifying child under age 6 and up to $3,000 per qualifying child ages 6 through 17. What additional requirements must be met for a taxpayer to be eligible to claim the Child Tax Credit for their qualifying child? - The child must: Be a qualifying child who is the taxpayer's dependent and who has not reached their 18th birthday by the end of the year. Have a social security number valid for employment before the due date of the return. Be a citizen, national, or resident of the United States. Is the Child Tax Credit refundable or nonrefundable? - For most taxpayers, the Child Tax Credit is fully refundable in 2021. In other years, the Child Tax Credit is nonrefundable. However, certain taxpayers may qualify for the Additional Child Tax Credit, which is refundable. How much is the penalty if a paid preparer fails to meet the Child Tax Credit due diligence requirements? - There is a $545 penalty for failing to meet the CTC/ODC/ACTC due diligence requirement on one taxpayer's return. What is the first due diligence requirement for the CTC/ODC, and how does a paid preparer meet this requirement? - Complete and submit Form 8867, Paid Preparer's Earned Income Credit Checklist. How may a married taxpayer qualify as unmarried for tax purposes? - To qualify as unmarried for the purpose of claiming the head of household filing status, a taxpayer must meet all of the following: Not file a joint return with their spouse. Provide more than half the cost of maintaining their home. The home must be the main home for the taxpayer and their dependent child (or child who would be a dependent except that the exemption was given to the noncustodial parent) for more than six months of the tax year.