Key takeaways
- Many federal tax credits are designed to provide financial relief for particular circumstances.
- Tax credits reduce your actual tax bill dollar for dollar.
- Some tax credits are partially “refundable,” meaning that if the credit amount exceeds your tax bill, the government will reimburse you.
What’s the best way to reduce the pain in paying taxes? By taking credit where credit is due.
In this case, we mean applying and qualifying for the many federal tax credits that are designed to provide financial relief for particular circumstances—whether you’re trying to save money, go to school, get health care coverage, pay for a caretaker or even adopt a child.
The beauty of a tax credit is that it reduces your actual tax bill dollar for dollar, unlike a deduction, which reduces your income and lowers your tax bill only by the tax rate you would have paid on that amount. Moreover, some tax credits are “refundable” to a certain extent, which means the government will actually pay you if the amount of the credit exceeds your tax bill.
Read on to find out what tax credits are available, who’s eligible to claim the credits and how you could benefit if you qualify. You’ll find links to official Internal Revenue Service (IRS) information about each credit, such as eligibility requirements and application specifics.
Note that many provisions of the tax code do have income caps, phase-outs and other wrinkles that could affect your actual tax liability. Be sure to work with a tax adviser, or use reliable tax software that clearly addresses your situation, especially if you are in the higher income brackets.
8 tax credits that can help you reduce what you owe or get money back
1. Earned Income Tax Credit
Commonly called the EITC, the Earned Income Tax Credit is intended as “a tax credit to help you keep more of what you earned,” according to the IRS. (Technically, that’s what all tax credits do.) To qualify for the EITC, you must fall into a low- to moderate-earnings range and make income from employment, self-employment or another source.
The credit amount depends on your income and the number of children you have, if any. It can go as high as $7,830.
As is often the case, there are rules involved that force many tax filers to make choices. You can claim a dependent for EITC purposes if they qualify, even if you don't claim them as an exemption. The dependent doesn’t necessarily have to be under 19. For example, a full-time student under 24 also qualifies, as does a disabled dependent.
The EITC falls into the “refundable” category, so in some cases tax filers will receive money from the government if the credit exceeds their tax bill. Unfortunately, government studies suggest that some 20% of households that are eligible for the EITC fail to claim it and miss out on that money.
For the 2024 tax year, the income limit to qualify for the EITC filing as a single or widowed head of household with no qualifying children is $18,591. But the limit with even just one qualifying child jumps to $49,094; with three children, it’s $59,899. Married filing jointly limits income to $25,511 with no children. That amount increases to $56,004 with one child, and to $66,819 with three children.
By law, the IRS cannot process a tax refund with an EITC component before March.
2. Saver’s Credit
The Saver’s Credit benefits those with low-to-moderate incomes, to give them an incentive to save for retirement. It includes plans such as a traditional IRA or Roth IRA, SIMPLE IRA, SARSEP, 401(k), 403(b), 501(c)(18) or the governmental 457(b).
Calculated on the first $2,000 socked away ($4,000 for married couples), the maximum credit for the 2024 tax year is $1,000 for an individual and $2,000 for married couples filing jointly. However, the payout is often much less, reduced according to other deductions and credits taken.
The often-overlooked Saver’s Credit is an additional benefit to contributions to an employer-sponsored savings plan, coming on top of the reduced income from the tax deduction, which could make you qualify for the EITC (see previous section).
Don’t forget that many work-sponsored retirement plans offer matches on contributions, which means even more money for participants.
3. American Opportunity Tax Credit
The American Opportunity Tax Credit can be claimed for the first four years of postsecondary education. This valuable tax credit helps cover education costs by allowing a tax credit of up to $2,500 per student each year—with part of that credit available as a refund.
A refundable credit can reduce your total tax owed to a negative number, meaning Uncle Sam pays you instead of the other way around. This means you could get a refund of up to $1,000 even if you owe no taxes.
To qualify, the taxpayer must pay for the course materials, tuition and required fees for a student who is attending an eligible institution and meeting specific enrollment requirements (at least half time for a program leading to a degree or credential). In addition, qualified taxpayers must have a modified adjusted gross income (MAGI) below the phase-out thresholds ($90,000 for single and head of household filers and $180,000 for joint filers).
Taxpayers claim the AOTC by filing Form 8863 [PDF] with their return and including the required identification and expense details along with any supporting documentation such as Form 1098 T. Understanding the differences between the education credits is key to optimizing tax benefits related to higher education expenses
4. Lifetime Learning Credit
The Lifetime Learning Credit (LLC) helps cover qualified tuition and related expenses for students pursuing undergraduate, graduate and professional degree courses, including courses intended to acquire or improve job skills, such as a teaching certificate.
In contrast to the AOTC, the LLC doesn’t require students to be pursuing a degree. It can be claimed if the student is attending school only part time, and it is not limited to the first four years of postsecondary education. The LLC generally provides a tax credit of 20% of qualified expenses up to a maximum of $10,000 in expenses, with a maximum credit of $2,000 per tax return regardless of the number of students. The LLC is nonrefundable. With a nonrefundable credit, you can only reduce your tax burden to zero, instead of getting money back through a refundable credit.
5. The Child Tax Credit
The Child Tax Credit will reduce your tax bill dollar for dollar. This longstanding tax credit reduces federal income taxes based on your number of children. You can take advantage of this tax credit even if your child was born in late December.
The 2017 tax reform bill raised the credit amount from $1,000 to $2,000 per eligible child. The refundable portion may be $1,600. Legislation currently before Congress could expand the child tax credit for 2023 in favor of low-income families, raising the maximum credit amount for couples earning at least $2,500 and a maximum of $15,000 to $3,525. The legislation would raise the refundable amount to $1,800 for 2023.
The income threshold for receiving the full child tax credit is $400,000 for married filing jointly and $200,000 for all other filers. Beyond those amounts, the credit is reduced by $50 for every $1,000 of extra income.
For tax year 2024, the Child Tax Credit continues to provide valuable relief for families, with several important updates:
Credit details
- You may claim up to $2,000 per qualifying child
- A qualifying child must meet relationship, residency, age and support criteria and must have a valid Social Security number issued by the due date of your return
Income limits
- The credit phases out at a modified adjusted gross income (MAGI) of $200,000 for all filing statuses (except married filing jointly, which has a $400,000 threshold)
Refundable portion (Additional Child Tax Credit or ACTC)
- The Additional Child Tax Credit (ACTC) is the refundable part of the Child Tax Credit. It can be claimed by those who owe less than their qualified Child Tax Credit amount to the IRS. Because the CTC is not refundable, the Additional Child Tax Credit refunds the unused portion of the CTC to the taxpayer. For 2024, the maximum refundable portion per qualifying child has increased from $1,600 to $1,700 based on IRS Revenue Procedure 2023 34.
Filing requirements
- When claiming the CTC, ensure that you follow the instructions on Form 1040 (or its equivalent) and attach Schedule 8812. If you have had issues with claiming the credit in previous years, additional forms (such as Form 8862) may be required.
6. Credit for Child and Dependent Care
The Credit for Child and Dependent Care is for people who, in order to work or look for work, need to pay for services for either their children, a spouse or a dependent of any age who is physically or mentally unable to care for themselves. The credit for up to 35% of expenses is capped at $3,000 for a single dependent and $6,000 for two or more.
7. Premium Tax Credit
The Premium Tax Credit, a fully refundable tax credit, helps citizens who are covered by a health care exchange through the Health Insurance Marketplace. The intent here is to ensure that the monthly premiums are more affordable for middle- and low-income Americans. It’s available only to those who do not have access to employer-sponsored programs or government programs such as Medicaid and Medicare.
Section 36B of the Internal Revenue Code provides for a refundable premium tax credit that reduces the cost of insurance purchased in the individual market. The credit is “refundable,” meaning that if the credit exceeds your tax liability, you may receive the excess as a refund. Taxpayers who are “applicable taxpayers” (generally those whose household income is at least 100% but no more than 400% of the federal poverty line, and who are not claimed as dependents by another taxpayer) can claim the credit when they purchase a qualified health plan through the Health Insurance Marketplace.
The tax reform bill did not affect this credit directly, but it did remove the requirement to have health insurance—the individual mandate—from 2019 on.
8. Adoption Credit
The Adoption Credit helps families offset the high cost of adopting a child. Qualified expenses include court/attorney fees, traveling expenses—such as meals and lodging while away from home—and other associated costs of adoption.
To be eligible for the credit, parents must:
- Have adopted a child other than a stepchild. The child must be either under 18 or be physically or mentally unable to take care of themselves.
- Be within the income limits. Income affects how much of the adoption credit parents can claim. In 2024, families with a modified adjusted gross income of $252,150 or less can claim the full credit. Those with incomes from $252,151 to $292,150 can claim partial credit, and those with incomes above $292,150 cannot claim the credit.
NOTE: Information in this article is accurate as of March 1, 2025.
