Study with the several resources on Docsity
Earn points by helping other students or get them with a premium plan
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Master 2026/2027 tax credits with 100 exam-style MCQ covering Child & Dependent Care, AOTC, Child Tax Credit, EIC, Saver's Credit & more. Full answer key with expert explanations. Updated for OBBBA 2025 & IRS Notice 2025-67. 2026 individual tax credits practice exam, Child and dependent care credit 2026 MCQ, American Opportunity Tax Credit phaseout 2026, Earned Income Credit 2026 tax preparation, CPA REG tax credits multiple choice questions
Typology: Exams
1 / 51
This page cannot be seen from the preview
Don't miss anything!
Description: Master 2026/2027 tax credits with 100 exam-style MCQ covering Child & Dependent Care, AOTC, Child Tax Credit, EIC, Saver's Credit & more. Full answer key with expert explanations. Updated for OBBBA 2025 & IRS Notice 2025-67. Download now and pass with confidence!
Instructions This examination consists of forty-five multiple-choice questions covering various individual tax credits and deductions. Select the best answer for each question. Each question is worth one point. SECTION A: CREDIT FOR CHILD AND DEPENDENT CARE EXPENSES Question 1 The maximum amount of qualifying dependent care expenses that can be used to calculate the child and dependent care credit is $3,000 for one qualifying individual. A) True B) False Answer: A) True Explanation: For tax year 2026, the maximum eligible expenses for the child and dependent care credit are $3,000 for one qualifying individual and $6,000 for two or more qualifying individuals. These limits have remained unchanged since the Tax Cuts and Jobs Act of 2017. Question 2 Tuan and Marisa are married, file a joint return, and have two dependent children, Zack (age 6) and Aaron (age 5). Tuan has earned income of $72,000. Marisa was a full-time student for nine months with no income. They paid a qualified day care center $5,000. What is the amount of their child and dependent care credit for the year? A) $ B) $
Question 4 Guillermo and Felicia are married, file a joint return, and have one dependent child, Hannah (age 6). Guillermo has earned income of $38,000. Felicia was a full-time student for eight months with no income. They paid a qualified day care center $4,800. What is the amount of their child and dependent care credit for the year? A) $ B) $ C) $ D) $4, Answer: B) $ Explanation: Felicia, as a full-time student for eight months, is deemed to have earned income of $250 per month for one qualifying individual, totaling $2,000 ($250 × 8 months). The maximum qualifying expense for one child is $3,000, but the credit is limited to Felicia's deemed earned income of $2,000. With an AGI of $38,000, the applicable credit percentage is 23%. The credit is $2,000 × 23% = $460. Question 5 Which of the following statements is true with regard to the child and dependent care expense credit? A) The maximum amount of expenses for one dependent is 35% of all qualified expenses B) Married taxpayers may file separate returns and still qualify for the credit C) If a spouse is attending school full-time, the credit cannot be claimed D) The credit phases out completely if the taxpayer's AGI exceeds certain amounts Answer: B) Married taxpayers may file separate returns and still qualify for the credit Explanation: Married taxpayers filing separately may qualify for the child and dependent care credit only if they are legally separated or living apart for the entire year. The credit is calculated
as a percentage (20-35%) of qualifying expenses, not a flat 35% of expenses. Full-time students can generate deemed earned income for credit purposes. The credit does not completely phase out but reduces to 20% for taxpayers with AGI above $43,000. Question 6 Sam is a single father with two dependent twin daughters, Amy and Amanda (ages 4). He has AGI of $31,000 and paid $5,300 to a qualified day care center. What amount of credit can Sam receive for the child and dependent care credit? A) $1, B) $1, C) $3, D) $5, Answer: B) $1, Explanation: With two qualifying children, the maximum eligible expense is $6,000. Sam's actual expenses of $5,300 are below this limit. With AGI of $31,000, the applicable credit percentage is 27% (the percentage phases down from 35% to 20% as AGI increases from $15,000 to $43,000). The credit is $5,300 × 27% = $1,431. Question 7 Bob and Joyce are married, file a joint return, and have one dependent child, Dane (age 9). Bob has earned income of $72,000. Joyce was a full-time student for nine months with no income. They paid a qualified day care center $4,000. What amount of child and dependent care credit can Bob and Joyce receive? A) $ B) $ C) $ D) $1,
Explanation: The Lifetime Learning Credit provides a maximum credit of $2,000 per tax return, not per student. This is a key distinction from the American Opportunity Tax Credit, which is calculated on a per-student basis. Question 10 The American Opportunity Tax Credit and Lifetime Learning Credit are available to taxpayers without any limitations due to AGI amounts. A) True B) False Answer: B) False Explanation: Both education credits have AGI phaseout ranges. For the American Opportunity Tax Credit, the phaseout begins at $80,000 for single filers and $160,000 for married filing jointly (2026 figures). The Lifetime Learning Credit phases out at $59,000 for single filers and $118,000 for married filing jointly (2026 figures). Question 11 The two types of education credits available (American Opportunity Tax Credit and Lifetime Learning Credit) may be used in combination in any given year to give the taxpayer the greatest tax advantage. A) True B) False Answer: B) False Explanation: Taxpayers cannot claim both credits for the same student in the same tax year. However, they may claim the American Opportunity Tax Credit for one student and the Lifetime Learning Credit for another student in the same year.
Question 12 A student can only receive the American Opportunity Tax Credit if enrolled in the first four years of postsecondary education. A) True B) False Answer: A) True Explanation: The American Opportunity Tax Credit (formerly the Hope Credit) is specifically limited to students in their first four years of postsecondary education who have not yet completed four years of higher education and are pursuing a degree or recognized credential. Question 13 The maximum American Opportunity Tax Credit for the current tax year is $2,500 per student. A) True B) False Answer: A) True Explanation: The American Opportunity Tax Credit provides a maximum annual credit of $2,500 per eligible student, calculated as 100% of the first $2,000 of qualified expenses and 25% of the next $2,000. Question 14 Kevin paid $2,550 in qualifying expenses for his daughter Jasmine, who attended a community college. What is Kevin's Lifetime Learning Credit without regard to AGI limitations or other credits? A) $ B) $1,
Question 16 Nick and Katelyn paid $1,600 and $2,100 in qualifying expenses for their two daughters, Nicole and Naomi, respectively, to attend the University of Nevada. Nicole is a sophomore and Naomi is a freshman. Nick and Katelyn's AGI is $202,000. What is their allowable American Opportunity Tax Credit after the credit phaseout based on AGI is taken into account? A) $ B) $2, C) $3, D) $3, Answer: A) $ Explanation: With AGI of $202,000, Nick and Katelyn exceed the phaseout range for married filing jointly taxpayers (eliminated at $180,000). Therefore, they are not eligible for any American Opportunity Tax Credit. Question 17 Matt is a single father who paid $5,000 in qualifying expenses for his son Kyle to attend the University of Oregon. Kyle is a sophomore. Matt's AGI is $47,000. What is his allowable American Opportunity Tax Credit after the credit phaseout based on AGI is taken into account? A) $ B) $2, C) $4, D) $5, Answer: B) $2, Explanation: The American Opportunity Tax Credit is calculated as 100% of the first $2,000 of qualified expenses and 25% of the next $2,000. Kyle's expenses of $5,000 exceed the $4,0 00
maximum, so the credit is $2,000 + (25% × $2,000) = $2,500. With AGI of $47,000, Matt is well below the phaseout threshold of $80,000 for single filers. Question 18 Lupe paid the following expenses during December 2026 for her son David's spring 2027 college expenses. The semester begins in February 2027. In addition, David's grandfather paid $500 in fees on behalf of David directly to the college. David is claimed as a dependent on Lupe's tax return. How much of the above expenses qualify for purposes of Lupe's education credit in 2026? A) $8, B) $16, C) $16, D) $24, Answer: C) $16, Explanation: Qualified education expenses paid in the current year for an academic period beginning in the first three months of the following year are generally eligible for the credit in the year paid. The grandfather's payment of $500 directly to the college on behalf of David does not count as expenses paid by Lupe for credit purposes, as only expenses paid by the taxpayer (or claimed as a dependent) qualify. Question 19 Kim paid the following expenses during November 2026 for her son Joshua's spring 2027 expenses, which begins in January 2027. In addition, Kim's sister paid $800 for college fees on behalf of Joshua directly to the college. Joshua is claimed as Kim's dependent on her tax return. How much of the paid expenses qualify for purposes of the education credit for Kim in 2026? A) $8, B) $14,
Question 21 Edward and Ethel are ages 71 and 59, respectively, and file a joint return. They have AGI of $11,000 and received $2,000 in nontaxable Social Security benefits. How much can Edward and Ethel take as a credit for the elderly or the disabled? A) $ B) $1, C) $2, D) $2, Answer: A) $ Explanation: The base amount for married filing jointly with only one spouse age 65 or older is $5,000. The $2,000 of nontaxable Social Security benefits reduces the base to $3,000. The AGI reduction is (AGI - $10,000) / 2 = ($11,000 - $10,000) / 2 = $500, reducing the base to $2,500. The credit is 15% × $2,500 = $375. Question 22 In order to be eligible for the credit for the elderly or the disabled, the taxpayer must be age 55 or older or have retired on permanent disability. A) True B) False Answer: B) False Explanation: The credit for the elderly or the disabled is available to individuals who are age 65 or older or who are under age 65 and permanently and totally disabled, regardless of whether they have retired. The age threshold is 65, not 55.
Question 23 The foreign tax credit is available only to individuals born in a foreign country. A) True B) False Answer: B) False Explanation: The foreign tax credit is available to any U.S. taxpayer (citizen or resident) who pays or accrues foreign income taxes to a foreign country or U.S. possession. Citizenship or birthplace is not a requirement for claiming this credit. Question 24 Brendan paid $950 to Brazil in foreign income taxes. His total income was $52,500, which included $12,000 of investment income from Brazil. His U.S. tax liability is $8,000. Brendan's foreign tax credit is: A) $ B) $ C) $1, D) $12, Answer: B) $ Explanation: The foreign tax credit is limited to the lesser of the foreign taxes paid ($950) or the U.S. tax attributable to the foreign source income. The limitation is calculated as (Foreign Source Income / Total Income) × U.S. Tax Liability = ($12,000 / $52,500) × $8,000 = $1,829. Since the foreign taxes paid ($950) are less than the limitation ($1,829), the entire $950 is allowed as a credit.
Question 27 The child tax credit is reduced if AGI exceeds $110,000 for married filing joint taxpayers. A) True B) False Answer: A) True Explanation: For tax year 2026, the child tax credit begins to phase out at $110,000 for married filing jointly taxpayers, $75,000 for single filers, and $55,000 for married filing separately. The credit is reduced by $50 for each $1,000 (or fraction thereof) of AGI above the threshold. Question 28 The child tax credit of $1,000 per child is available for taxpayers with children under the age of
A) True B) False Answer: B) False Explanation: The child tax credit is available for qualifying children under the age of 17 at the end of the tax year. The credit amount was increased to $2,000 per qualifying child under the Tax Cuts and Jobs Act, with $1,400 being refundable (subject to phaseout and income limitations).
Question 29 Noah and Olivia have two boys, Jordan (age 6) and Jack (age 5). Their AGI is $176,000. What amount of child tax credit can they claim? A) $ B) $1, C) $2, D) $2, Answer: A) $ Explanation: The child tax credit begins to phase out at $110,000 for married filing jointly. The credit is reduced by $50 for each $1,000 (or fraction thereof) of AGI above the threshold. The reduction is ($176,000 - $110,000) / $1,000 = 66 × $50 = $3,300. Since the base credit is $4, (2 × $2,000), the full credit is eliminated. Therefore, they cannot claim any child tax credit. Question 30 Patricia is single and her son Quinn is age 11. If her AGI is $77,000, what amount of child tax credit can she claim? A) $ B) $ C) $ D) $1, Answer: C) $ Explanation: The child tax credit begins to phase out at $75,000 for single filers. The reduction is ($77,000 - $75,000) / $1,000 = 2 × $50 = $100. The base credit is $2,000, reduced by $100 to $1,900. However, since Quinn is age 11, he qualifies for the child tax credit. The calculation should be: base credit of $2,000 reduced by $100 = $1,900. But wait—the phaseout calculation continues until the credit reaches zero, and the credit is reduced by $50 for each $1,000 (or
Question 33 Casey and Lupe have AGI of $125,000. They have twin daughters, Ashley and Alley, ages 5. What amount of child tax credit can they claim? A) $ B) $1, C) $1, D) $2, Answer: C) $1,250 (Note: This answer may need revision based on current 2026 figures) SECTION F: RETIREMENT SAVINGS CONTRIBUTIONS CREDIT Question 34 The retirement savings contributions credit is available for married filing joint taxpayers only. A) True B) False Answer: B) False Explanation: The retirement savings contributions credit (Saver's Credit) is available to eligible individuals regardless of filing status, including single filers, heads of household, and married filing jointly. Eligibility is based on AGI thresholds, not filing status alone. Question 35 The maximum contribution amount for the retirement savings contributions credit for each tax year is 20% of a taxpayer's AGI. A) True B) False
Answer: B) False Explanation: The retirement savings contributions credit allows a credit of 10%, 20%, or 50% of the first $2,000 of contributions ($4,000 for married filing jointly). The applicable percentage depends on the taxpayer's AGI. The maximum credit is $1,000 ($2,000 × 50%) for single filers and $2,000 ($4,000 × 50%) for married filing jointly. Question 36 Andrew and Marina are married filing jointly and have modified AGI of $47,500. Andrew made a contribution to a qualified retirement plan of $2,000 during the year. How much is their retirement savings contributions credit? A) $ B) $1, C) $1, D) $2, Answer: A) $ Explanation: For married filing jointly taxpayers with AGI between $46,000 and $51,500 ( figures), the Saver's Credit is 10% of contributions up to $4,000 ($2,000 per spouse). Andrew contributed $2,000, so the credit is 10% × $2,000 = $200. Question 37 Molly is single with AGI of $22,500. During the year, she contributed $900 to an IRA. What amount of retirement savings contributions credit can Molly claim? A) $ B) $ C) $ D) $
