Exercises

1. Exercises CTC and EIC

2. Exercise 1 • Denise will file as Head of Household for 2009. She has a modified AGI of $44,000. She has three dependent qualifying children. Is she eligible for the full $1,000 child tax credit? • True or False? A taxpayer's nonrefundable child tax credit will be zero if the taxpayer has no tax liability.

3. Exercise 2 • Mary and Ralph got divorced in 2002. They have one child together, Amy, who lives with Mary. All are U.S. citizens and have SSNs. Mary and Ralph provide more than half of Amy’s support. Mary’s AGI is $31,000 and Ralph’s AGI is $39,000. Amy is 12 years old. The divorce decree does not state who can claim the child. Mary signed Form 8332 to give the dependency exemption to Ralph.

4. Exercise 2-options • Ralph can claim Amy as a dependent along with the tax benefits. • Ralph and Mary need to choose who can claim Amy as a dependent and any other tax benefits. • Ralph can claim Amy as a dependent and the child tax credit. Mary can use Amy to file as Head of Household and claim the earned income credit and the child and dependent care credit as long as she meets the requirements for those specific benefits. • Neither Ralph nor Mary can claim Amy as a dependent or any of the other benefits.

5. Exercise 3 • Stan files as Head of Household and has three children who qualify for purposes of the child tax credit. Stan's MAGI is $54,000 and his tax liability is $4,680. Is Stan eligible to take the full credit of $1,000 per child ($3,000)?

6. Exercise 4 • Which of the following would prevent a taxpayer from being eligible for the EIC? • Being married to a nonresident alien • Using the Head of Household filing status • Using the Married Filing Separately status • Filing a joint return with a spouse who does not have a SSN

7. Exercise 5 • For the purposes of EIC, which of the following types of income are considered to be earned income? • Alimony • Household employee income reported on Form W-2 • Child support • Interest and dividends

8. Exercise 6 • A taxpayer's earned income is only $7,000. He has interest income of $3,200. He is single, has a valid social security number and is not the qualifying child of anyone else. Can he qualify for the EIC?

9. Exercise 7 • Roger is single and has two qualifying children. His earned income of $23,247 and his AGI of $26,928 are both within the limits for EIC eligibility. Before deciding whether Roger can claim the EIC, you need to check all of the following EXCEPT _____. • Filing status • His two children have valid social security numbers • Roger's investment income

10. Exercise 8 • Sharon has an eligible foster child, Eric, who is 12 years old and began living with Sharon in August of the tax year. Sharon's earned income and her adjusted gross income are each $14,275. Can Sharon claim the earned income credit?

11. Exercise 9 • The following children live with Mira, who takes care of all of them as if they were her own. Which child meets the EIC tests? • Ann, the 3-year-old daughter of Mira's cousin • Billy, the 10-year-old son of Mira's stepdaughter • Chez, Mira's newly adopted 2-year-old son from Europe, who has lived with Mira since September • Dione, Mira's 20-year-old son, who attends community college part time

12. Exercise 10 • Three taxpayers have claimed the EIC for the same child. One is the child's parent, another provided the child's home for the longest period of time during the tax year, and the third is a member of the household who had the highest AGI. Which taxpayer would be entitled to the credit? • The taxpayer the child lived with longest during the tax year • The taxpayer with the highest AGI • The taxpayer with the lowest AGI • The parent

13. Exercise 11 • Randy and Cara are U.S. citizens who were married and lived together until August when they divorced. They have two children, Jimmy, 7, and Anna, 5. The children lived with both of their parents until August, and then they lived with their mother after the divorce. Randy's earned income and adjusted gross income are $19,251. Cara's earned income is $14,751, and her adjusted gross income is $15,362.For the purposes of the EIC, Jimmy and Anna might be qualifying children for _____. • Their mother, Cara • Their father, Randy • Either parent • Neither parent

14. Exercise 11-options • What are Randy and Cara's options? • One can claim the credit on the basis of both children • Each can claim the credit on the basis of a different child • Either of the above • Both parents can claim the credit for both children

15. Exercise 12 • Benjamin, age 26, lives alone, is single, and earns $10,250. His adjusted gross income is $10,950. Can Benjamin claim the earned income credit?

16. Exercise 13 • Larry and Lucille are married and live together. Their combined earned income is $22,222. Larry reports adjusted gross income of $10,728 on his separate tax return, and Lucille reports adjusted gross income of $11,514 on her separate return. Peter, their 4-year-old son, lives with them. Can Larry and/or Lucille claim the earned income credit? • Yes, either Larry or Lucy can claim the EIC • Yes, Larry and Lucy can both claim the EIC • No, neither Larry nor Lucy can claim the EIC

17. Exercise 14 • Antonio has $23,050 in earned income and his adjusted gross income is $23,175. His filing status is single. Antonio's 20-year-old daughter, Maria, lived with him for eight months of the year. Maria is not married and is a full-time college student. Can Antonio claim the earned income credit?