Tax credits can either lower what you owe in taxes or increase your refund. Some credits might even give you money back, even if you don’t owe taxes. These credits are like helpful tools from the government, encouraging good actions. They’re not just about saving money but also about making things better, like supporting education, going green, and helping families.

Below, you can explore a range of common tax credits.

Earned Income Tax Credit (EITC)

EITC is a refundable credit designed to assist low to moderate-income workers and families. The credit amount is based on income, filing status, and number of qualifying children, providing a financial boost to those who qualify.

Child Tax Credit (CTC)

Child tax credit is a credit providing financial relief to eligible taxpayers with qualifying children. Recent changes have made it fully refundable and increased the credit amount, benefiting families with children.

Child and Dependent Care Credit

The Child and Dependent Care Credit offers financial support to eligible taxpayers for childcare expenses incurred while working or seeking employment. It provides a percentage of qualifying costs, making it a valuable resource for working parents or guardians. The credit amount varies based on the taxpayer’s income, offering assistance in managing the dual responsibilities of work and childcare.

Foreign Tax Credit

The Foreign Tax Credit is a provision allowing U.S. taxpayers to offset taxes paid to foreign governments against their U.S. tax liabilities. This credit aims to prevent double taxation on income earned abroad. Taxpayers can claim a credit for foreign income taxes paid or accrued, helping to avoid being taxed on the same income by both the United States and a foreign country. It’s an essential tool for individuals and businesses engaged in international activities, fostering global economic participation and fairness in the taxation of foreign-earned income.

Education Tax Credits (American Opportunity Tax Credit and Lifetime Learning Credit)

These credits aim to offset higher education costs. The American Opportunity Tax Credit provides up to $2,500 per eligible student for qualified expenses, while the Lifetime Learning Credit offers up to $2,000 per tax return for eligible education expenses.

Healthcare-Related Tax Credits (Premium Tax Credit)

Available under the Affordable Care Act, this credit helps eligible individuals and families afford health insurance purchased through the Health Insurance Marketplace. The amount is based on income and household size.

Retirement Savings Contributions Credit (Saver’s Credit)

This credit encourages eligible taxpayers to save for retirement by providing a credit for contributions to retirement plans. The credit amount is based on income and contributions to qualified retirement savings.

Adoption Tax Credit

Offers a credit to eligible taxpayers for qualified adoption expenses, including adoption fees, court costs, attorney fees, and travel expenses related to adopting a child. The credit helps offset adoption costs for qualified individuals.

Energy-Efficient Home Improvement Tax Credits

Tax credits are available for qualified energy-efficient home improvements, such as installing solar panels or energy-efficient heating and cooling systems. These credits aim to incentivize environmentally friendly home upgrades and reduce energy consumption.

Electric Vehicle Tax Credits

The Electric Vehicle Tax Credit offers up to $7,500 for eligible taxpayers purchasing qualified plug-in electric vehicles. This incentive aims to promote electric vehicle adoption, reducing emissions and fossil fuel dependence. The credit, non-refundable and based on battery capacity, gradually phases out for manufacturers after a set sales threshold. To qualify, vehicles need a minimum 4 kWh battery capacity and must be rechargeable. While it reduces tax liability, the credit doesn’t generate refunds beyond owed taxes, requiring taxpayers to meet specific criteria, including purchasing a new eligible vehicle.

References;
Energy Efficient Home Improvement Credit
https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit
The Premium Tax Credit – The Basics
https://www.irs.gov/affordable-care-act/individuals-and-families/the-premium-tax-credit-the-basics
IRS Publication 519, U.S Tax Guide for Aliens
https://www.irs.gov/forms-pubs/about-publication-519
Child Tax Credit
https://www.irs.gov/credits-deductions/individuals/child-tax-credit
Foreign Tax Credit
https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit
Tax Benefits for Education: Information Center
https://www.irs.gov/newsroom/tax-benefits-for-education-information-center

Disclaimer
This article is intended for informational purposes and should not be taken as legal or tax advice. You must consult with your tax, financial or legal adviser about your unique financial situation before acting on anything discussed in this article. TaxBasket LLC is providing informational content for general guidance to help small business owners become more aware of certain issues and topics and this article must never be considered as a substitute for advice provided by your tax, financial or legal advisers. TaxBasket LLC or its members cannot be held liable for any use or misuse of this content.