Commonly Overlooked Credits
Unlike tax deductions, tax credits directly reduce the amount of tax you must to pay. Credits come into play after taxable income is computed and your tax liabilities are determined. There are many tax credits and many ways to qualify for them. You may be eligible for some of these tax credits.
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Below are some tax credits:
Earned Income Credit
The Earned Income Tax Credit (EITC or EIC) is a refundable credit available to lower-income taxpayers who work. taxpayers may qualify for EIC even if they have no qualifying children. However, the rules are slightly different from those taxpayers with qualifying children.
- Rules for taxpayers without qualifying children:
- Must be at least 25 years old but younger than age 65 on January 1, 2009
- Not be able to be claimed as dependent on another taxpayer's return
- Lived in the United States for at least half of the tax year
- Have earned income and AGI less than a certain threshold
- Rules for taxpayers with qualifying children:
- Have a qualifying child who meets the relationship, age, and residency test for a dependent
- Have a qualifying child who is not claimed by more than one person for EIC
- Have earned income and AGI less than a certain threshold
Child Tax Credit
The Child Tax Credit is nonrefundable credit that is worth up to $1,000 per qualifying child.
- In order to qualify for the Child Tax Credit, all of the following must be true:
- The taxpayer must have a qualifying child
- The qualifying child must be under the age of 17 at the end of the tax year
- The qualifying child must be a US citizen, US national, or resident of the United States
Some taxpayers may qualify for the refundable Additional Child Tax Credit as well.
Child and Dependent Care Credit
Single parents and dual-career couples must find ways to care for their young children while they work or look for work. The Child and Dependent Care Credit provides a way for such parents to recoup some of their expenses for child care. This credit is also available to taxpayers caring for disabled dependents and spouses.
- To claim this credit, the following requirements must be met:
- The care must have been provided so the taxpayer (and the spouse, if married) could work or look for work
- The taxpayer must have some earned income. Married taxpayers must both have earned income, unless one spouse was a student or disabled
- The taxpayer and the person(s) for whom the care was provided must have lived in the same home
- The person who provided the care must not be someone the taxpayer can claim as a dependent. Services provided by the taxpayer's child under the age of 19 do not qualify even if the provider is not a dependent
Adoption Credit
Taxpayers who adopt a child may quality for the nonrefundable Adoption Credit for adoption expenses. If a US citizen or resident is adopted, then the credit is generally claimed the in the year following the year the expenses incurred. This is true even if the adoption is never finalized. However, if the adoption becomes final during or before the year in which the taxpayer paid the expenses, he/she will claim the credit in the year the expenses were paid. If the adopted child is not a US citizen or resident, then the credit can only be claimed for year the adoption is finalized. An eligible child for the purposes of this credit must be under the age of 18 or physically or mentally incapable of self-care.
- Qualified Expenses:
- Adoption fees
- Court costs and attorney fees
- Travel expenses, including meals and lodging
- Any other expenses directly related to, and necessary for, the adoption
Education Credits
The Education Credits may be claimed based on qualified tuition and related expenses incurred at an eligible educational institution. Expenses paid for the taxpayer, a spouse, and any dependents may be qualified expenses. There are two Education Credits: the Hope Credit and the Lifetime Learning Credit. The nonrefundable Hope Credit is available for eligible students in the first two years of post-secondary education from an eligible institution. The Lifetime Learning Credit may be claimed for an unlimited number of tax years for qualified expenses incurred by an eligible student enrolled in a degree program for undergraduate or graduate-level courses. In addition, the Lifetime Learning Credit is available for any courses taken to acquire or improve job skills of the student.
Retirement Savings Contributions Credit
The nonrefundable Retirement Savings Contributions Credit or "Saver's Credit" may be claimed by qualified lower and middle-income taxpayers who make retirement plan contributions (IRAs or employer sponsored retirement plans such as 401ks), which makes this one of the very few situations where a double benefit may be claimed.
Tax Resources
