Module 8 - Credits

What does a tax deduction do?

Reduces taxable income before tax is calculated.

What does a tax credit do?

Reduces the tax itself, dollar for dollar.

What is a nonrefundable credit?

Can reduce tax to zero, but generally cannot create a refund.

What is a refundable credit?

Can create a refund even when tax is reduced below zero.

What is partially refundable about the American Opportunity Credit?

40% of the credit is refundable.

How much of the 2025 Adoption Credit is refundable?

Up to $5,000; the nonrefundable portion can carry forward 5 years.

What form is used for the Child and Dependent Care Credit?

Form 2441.

What are the three types of qualifying persons for the care credit?

A child under 13; a spouse unable to care for themself; or another dependent unable to care for themself.

What is the main purpose of work-related care expenses?

They must enable the taxpayer (and spouse, if MFJ) to work or look for work.

What are the care-credit expense limits?

$3,000 for one qualifying person; $6,000 for two or more.

What is the care-credit percentage range?

35% at AGI of $15,000 or less, gradually decreasing to 20% above $43,000.

What happens when a child turns 13?

Care qualifies only through the day before the 13th birthday.

Who generally claims care expenses for a child of divorced parents?

The custodial parent, regardless of who claims the child as a dependent.

What is the special earned-income rule for a student or disabled spouse?

Deemed income of $250/month for one qualifying person or $500/month for two or more.

How do employer dependent care benefits affect the care credit?

Excluded benefits reduce expenses available for the credit.

What is the employer dependent care benefit exclusion limit?

$5,000, or $2,500 for MFS.

What does Form 1095-A provide?

Marketplace coverage information needed to complete Form 8962.

Are Forms 1095-B and 1095-C used to complete Form 8962?

No. They are information statements; Form 1095-A is required.

What is the purpose of the Premium Tax Credit (PTC)?

Helps eligible taxpayers afford health insurance purchased through the Marketplace.

What is a tax family for PTC purposes?

The taxpayer, spouse, and dependents claimed on the return.

Whose income generally counts in PTC household income?

Tax-family members required to file a tax return.

What does Form 8962 reconcile?

The allowed Premium Tax Credit with advance payments (APTC).

What happens when the PTC exceeds APTC?

The difference is a refundable net Premium Tax Credit.

Where is excess APTC repayment reported?

Schedule 2.

What form is used for the Adoption Credit?

Form 8839.

What is the maximum 2025 Adoption Credit per eligible child?

$17,280, subject to income limits.

What is the 2025 Adoption Credit MAGI phaseout range?

$259,190 to $299,190.

When are U.S. adoption expenses generally claimed?

Generally the year after payment; when adoption is final, prior- and current-year expenses may be claimed.

When can foreign adoption expenses be claimed?

Only in the year the adoption becomes final. Failed foreign adoptions do not qualify.

Who determines whether an adopted child has special needs?

A state agency. The taxpayer cannot make that determination.

What form is used for the Foreign Tax Credit?

Form 1116, unless the taxpayer qualifies to claim it directly on Schedule 3.

What is the purpose of the Foreign Tax Credit?

Prevents double taxation on income taxed by both the U.S. and a foreign country.

When may Form 1116 be skipped under the course rule?

All foreign income is passive, foreign tax is under $300 ($600 MFJ), and tax is reported on a payee statement.

What form is used for the Saver's Credit, and is it refundable?

Form 8880; it is nonrefundable.

What form is used for the AMT Credit?

Form 8801; it can recover AMT paid in prior years.

What is required for the Mortgage Interest Credit?

A Mortgage Credit Certificate from a state or local government; it applies to a main home.

What form reports the General Business Credit?

Form 3800; the total generally carries to Schedule 3.