Enrolled Agent (EA) Part 1 — Individuals: Tax Computation, AMT, and Specialized Returns Syllabus

On what form do individuals pay estimated taxes, and on what form is the underpayment penalty computed?

Estimated payments use Form 1040-ES; the underpayment penalty is computed on Form 2210.

How is tax withholding treated for purposes of the underpayment penalty timing?

Withholding is treated as paid evenly throughout the year (in equal quarterly amounts) regardless of when it was actually withheld, which can help avoid an underpayment penalty.

What form does an employee use to set federal income tax withholding from wages?

Form W-4, Employee's Withholding Certificate; the employer uses it with IRS withholding methods to determine the amount withheld.

What is backup withholding, its rate, and a common trigger?

A 24% withholding on certain payments (interest, dividends, nonemployee compensation) triggered when a payee fails to furnish a correct TIN or the IRS notifies the payer of underreporting.

What are the FICA tax rates and the Social Security wage base concept?

Social Security tax is 6.2% on wages up to the annual wage base ($168,600 for 2024) and Medicare is 1.45% on all wages, each paid by both employee and employer (total 7.65% each side).

How is the self-employment (SE) tax computed and what is its rate?

SE tax is 15.3% (12.4% Social Security up to the wage base + 2.9% Medicare) applied to 92.35% of net SE earnings. Half of SE tax is deductible above the line. Computed on Schedule SE.

What is the federal failure-to-file penalty?

5% of the unpaid tax per month (or part of a month) late, up to a maximum of 25%. If over 60 days late, the minimum penalty is the lesser of a set dollar amount ($485 for 2024 returns) or 100% of the tax due.

What is the failure-to-pay penalty and how does it interact with failure-to-file?

0.5% of unpaid tax per month, up to 25%. When both apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay penalty (net 4.5% file + 0.5% pay = 5% per month).

What is the accuracy-related penalty and its common bases?

A 20% penalty on the underpayment attributable to negligence/disregard of rules or a substantial understatement of income tax (understatement exceeding the greater of 10% of correct tax or $5,000).

What is the civil fraud penalty?

75% of the portion of the underpayment attributable to fraud. The burden of proving fraud is on the IRS by clear and convincing evidence.

How is interest on underpayments determined and when does it stop?

Interest accrues from the original due date until paid, at the federal short-term rate plus 3%, compounded daily; it cannot generally be abated for reasonable cause (unlike many penalties).

What standard can abate many penalties (but not interest)?

Reasonable cause and good faith — the taxpayer exercised ordinary business care and prudence but still failed to comply. First-Time Abatement (FTA) administrative waiver may also apply for a clean compliance history.

What is the Foreign Earned Income Exclusion (FEIE) and its 2024 limit?

U.S. citizens/residents working abroad may exclude foreign earned income up to $126,500 (2024), plus a housing exclusion/deduction, if they meet the bona fide residence or physical presence test. Claimed on Form 2555.

What are the two tests to qualify for the Foreign Earned Income Exclusion?

(1) Bona fide residence test — a U.S. citizen who is a bona fide resident of a foreign country for an uninterrupted period including a full tax year; or (2) Physical presence test — present in a foreign country at least 330 full days during any 12 consecutive months.

What is the Foreign Tax Credit and the choice taxpayers have regarding foreign taxes?

A credit (Form 1116) for income taxes paid to foreign countries to relieve double taxation; alternatively the taxpayer may deduct foreign taxes as an itemized deduction. The credit is usually more beneficial.

What is FBAR and who must file it?

FinCEN Form 114 (Report of Foreign Bank and Financial Accounts); required of U.S. persons with foreign financial accounts whose aggregate value exceeds $10,000 at any time during the year. Filed with FinCEN, not the IRS, by April 15 (auto-extended to Oct 15).

What is Form 8938 (FATCA) and how does it differ from FBAR?

Statement of Specified Foreign Financial Assets, filed with the income tax return when assets exceed thresholds (higher than FBAR's $10,000 and varying by filing status/residence). Both may be required for the same assets.

What is the expatriation (exit) tax and who is a 'covered expatriate'?

A mark-to-market tax (Form 8854) on the deemed sale of worldwide assets when certain individuals renounce citizenship or end long-term residency. A covered expatriate meets a net worth test ($2 million), a 5-year average tax liability test, or fails to certify tax compliance.

How are U.S. resident aliens vs. nonresident aliens taxed?

Resident aliens are taxed on worldwide income (like citizens, filing Form 1040). Nonresident aliens are taxed only on U.S.-source income and income effectively connected with a U.S. trade/business, filing Form 1040-NR.

What two tests determine resident alien status?

The green card test (lawful permanent resident) and the substantial presence test (present in the U.S. at least 31 days in the current year and 183 weighted days over the current and prior two years using the 1, 1/3, 1/6 formula).

What is the annual gift tax exclusion and lifetime exemption (2024)?

The annual exclusion is $18,000 per donee (2024); the lifetime unified exemption is $13.61 million (2024). Gifts within the annual exclusion are not taxable or reportable.

When must a donor file a gift tax return (Form 709)?

When gifts to any one donee exceed the annual exclusion, when making gifts of future interests (any amount), when gift-splitting, or when making certain gifts to non-citizen spouses above the special limit.

What is gift splitting?

A married couple may elect to treat gifts made by one spouse as made one-half by each, effectively doubling the annual exclusion (e.g., $36,000 to a donee in 2024). Both spouses must consent on Form 709.

Name three gifts that are not subject to gift tax regardless of amount.

Direct payments of tuition to an educational institution, direct payments of medical expenses to a provider, gifts to a U.S.-citizen spouse (unlimited marital deduction), and gifts to qualified charities.

What is the unlimited marital deduction for estate and gift tax?

Transfers to a U.S.-citizen spouse (during life or at death) are fully deductible, deferring tax until the surviving spouse's death or later disposition. Transfers to non-citizen spouses do not qualify (limited annual exclusion / QDOT for estates).

What is portability of the estate tax exemption?

A surviving spouse may use the deceased spouse's unused exclusion amount (DSUE) by the executor making an election on a timely filed Form 706, effectively combining both spouses' exemptions.

What is the basis of inherited property (step-up in basis)?

Property acquired from a decedent generally takes a basis equal to its fair market value on the date of death (or the alternate valuation date if elected), and is treated as long-term when sold regardless of holding period.

What is the basis of gifted property?

The donee generally takes the donor's carryover basis for gains. For losses, if FMV at gift date is below the donor's basis, the basis for loss is that lower FMV (dual-basis rule). Holding period tacks for gain basis.

What is a decedent's final Form 1040, and who is responsible for filing it?

The final individual income tax return covers income from January 1 through the date of death; it is filed by the personal representative/executor (or surviving spouse), due by the normal April 15 deadline of the following year.

What is 'income in respect of a decedent' (IRD)?

Income the decedent earned/was entitled to but had not yet received at death (e.g., final wages, traditional IRA distributions). It is taxed to the recipient (estate or beneficiary), retains its character, and does not receive a step-up in basis.

What is the qualifying surviving spouse filing status and its requirements?

For the two years after the year of a spouse's death, a widow(er) with a dependent child may use the joint return tax rates and standard deduction if they have not remarried and maintain the household for the dependent child.