Tax Credits for IRS Tax Returns
A tax credit reduces your actual taxes; it decreases tax payments or increases a tax refund. In comparison, tax deductions reduce your taxable income. Tax credits help you keep bigger slices of an apple; the more tax credits you claim, the more of your hard-earned money you get to keep, reduce taxes owed, or increase your tax refund. What do tax credits do for you?
How Tax Credits Work
The best way to save money on taxes is to reduce your tax liability by claiming tax credits and deductions. Credits are payments towards the taxes you owe and, in some cases, can generate a tax refund if your tax liability is reduced to zero. There are two types of tax credits: refundable and nonrefundable - learn what the difference is.
For a breakdown of tax credits, see more details below. Did you know that eFile.com automatically checks for tax credits as you enter information? Start free and see how simple filing your taxes online can be.
Tax Credits Versus Tax Deductions
Above-the-line tax deductions reduce your taxable income. As a result, on your tax return Form 1040, you will have your adjusted gross income or AGI which includes certain deductions or adjustments. In addition to above-the-line deductions, there are standardized or itemized deductions. A standardized deduction is an amount you are entitled to deduct from your AGI based on the filing status. With an itemized deduction, you list each item you qualify for as a deduction. You can only claim a standardized or itemized deduction on your tax return. Which deduction is best for you? The eFile Tax App will calculate this for you and apply the deduction method that is more advantageous for you in addition to calculating and applying all your tax credits.
Tax deductions are not direct payments to you as tax credits are. For example, if your total annual income was $50,000 and you qualify for $12,950 in tax deductions, your taxable income would be reduced to $37,050. By reducing your taxable income, you would be taxed based on your filing status and personal tax bracket. In order to claim or qualify for most tax credits (except some retirement contributions) for the current tax year, the payments or expenses have to occur during the tax year or no later than December 31.
Attention: review extended or expired tax breaks, tax credits, and tax deductions.
Family, Parent Tax Credits
See a detailed overview of all child-related tax credits with links to tax calculators and tools.
Child Tax Credit
The Child Tax Credit is worth up to $2,000 for each qualifying child which can be claimed per qualifying dependent as long as you had earned income of at least $2,500. Up to $1,500 of the credit can be refundable for each qualifying child as the Additional Child Tax Credit. This tax credit is meant to provide help to parents with qualifying children. See details on the Additional Child Tax Credit and the enhanced CTC for 2021 only which does not apply to any other tax year. The Child Tax Credit is different from the Child and Dependent Care Credit.
Use the free eFile.com "CHILDucator" Child Tax Credit tool to find whether or not you qualify for the Child Tax Credit.
Child and Dependent Care Tax Credit
There are certain cases where you may claim a credit on family-related expenses if you are working, in school, or are in the process of looking for a job. Depending on the particulars of the situation, you may reduce your tax by claiming the Child and Dependent Care Tax Credit on your federal income tax return for any expenses related to payments made to someone to care for a child under age 13, a qualifying spouse, or a dependent.
Adoption Tax Credit
The Adoption Tax Credit is designed to help parents with the expenses involved in adopting a qualified child. An eligible child is any child under 18 or a child with special needs that lacks the ability to care for him or herself. The maximum available Adoption Tax Credit amount could be up to $16,000.
See more information on children tax credits and tax credits for parents with dependents and children.
Credit for the Elderly and Disabled
You may be able to claim the Credit for the Elderly or the Disabled if you are 65 years of age or older or if you retired on total and permanent disability and have taxable income. To take the credit, your income must not exceed certain limits.
Employee, Worker Tax Credits
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is a credit for taxpayers who earn low to moderate incomes. The EITC can reduce your taxes and may result in a tax refund which helps more working families and individuals keep more of the money they earned.
Use our free "EICucator" Earned Income Tax Credit tool to find out whether or not you qualify to claim the credit on your tax return.
Foreign Tax Credit
The Foreign Tax Credit was implemented to reduce a double tax burden for citizens earning income outside of the United States - once by the United States and again by the foreign country where the income is derived. See more information on foreign earned income and taxes.
U.S. citizens and resident aliens from the United States working or living in a foreign country during the year are allowed the same tax credits as U.S. citizens and residents from the U.S. living in the United States. Check out our detailed summary on tax credits for Americans living or working abroad.
Medical Tax Credits
Premium Tax Credit
Individual taxpayers and families may be able to claim the refundable Premium Tax Credit if they have low to moderate incomes and purchased health insurance through the Health Insurance Marketplace at HealthCare.gov. They can have the credit paid in advance to their insurance company in order to decrease their monthly premium payments or claim all of the credit on on their tax return.
Tax Credits for Education
Student Tax Credits
There are two major education tax credits available for both new and continuing students: the American Opportunity Credit and the Lifetime Learning Credit. Each credit offers special advantages to students, but both credits may not be claimed by or for the same student in the same year.
The American Opportunity tax credit is a partially refundable tax credit. This tax credit allows for up to 40 percent of the credit as a tax payment if you qualify to claim this credit for education expenses. When you use eFile.com, the tax app will separately calculate the refundable and nonrefundable portion on Form 8863 and eFileIT.
See our complete list of many student tax related topics.
Retirement Tax Credits
Saver's Credit (Retirement Savings Contribution Credit)
The Saver's Credit, formerly known as the Retirement Savings Contributions Credit, helps middle-income families and individuals save for retirement if they contribute to a retirement plan.
The Saver's Credit allows taxpayers to reduce their income tax dollar-for-dollar by up to $1,000 ($2,000 for married filing jointly). The exact amount of the credit depends on their income, filing status, and the total amount of their qualified contributions.
Information on Tax Breaks and Savings
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