Question

When tentative minimum tax exceeds the taxpayer's regular tax liability, the excess represents the taxpayer's:

1) Net income tax

2) Alternative minimum tax (AMT)

3) Total income tax liability

4) None of these

Bob White started work as an employee on Nov 1, 2019. His salary is $10,000 a month. Bob White's December 1st paycheck (for November) showed a sizable difference between his "gross" monthly pay and his "net" monthly pay. Much of this difference relates to federal income tax ("FIT") withheld. This withholding will be treated as ___________

1) an above-the-line deduction   

2) a below-the-line deduction

3) a nonrefundable tax credit

4) a refundable tax credit

Answer 1

question 1

Alternative minimum tax is the least amount a person needs to pay as tax. If the actual tax payable is more than AMT then actual tax amount is paid if actual tax payable is less than AMT then AMT is payable.

The difference between taxpayers annual minimum taxable income and annual minimum tax yields the tentative minimum tax

If tentative minimum tax > actual tax then the person pays actual tax and the amount by which the TMT is more than actual tax.

Hence the answer is (2) Alternative minimum tax.

question 2

when the employer withholds federal income tax of employee it is like an advance tax paid. This gives employee income tax credit. The IRS collects this withheld income tax from the employer. If the federal income tax withheld is more than the income tax payable the employee gets a refund.

Hence the correct answer is (4) a refundable tax credit