5 Big Tax Credits That Could Increase Your Refund

tax credits

The information in this article is up to date through tax year 2019 (taxes filed in 2020).

Claiming tax credits for which you are eligible will lower your tax bill and even increase the amount you can expect back. These federal tax incentives consist of various types of tax credits, including family tax credits, tax credits for students, and many more. They’re supposed to be used by those who qualify, which means you’re effectively turning down free money if you fail to claim your credit(s).

Many people are surprised to learn that they are eligible for certain credits, and are disappointed when they find that those same credits could have been claimed in previous years. So don’t let free money go floating by while you pay too much on your taxes: take the time to learn about tax credits and stake claim to what is rightfully yours.

1. Earned Income Tax Credit

The Earned Income Tax Credit, also known as the EITC (or just EIC) is meant for low- to moderate-income taxpayers. It can be claimed by single tax filers or married couples. The amount you can receive depends on your adjusted gross income and the number of qualifying children you claim as dependents. It is a refundable tax credit. This means that if the amount of the credit is bigger than your tax bill, the difference gets added to your refund.

For tax year 2020, the maximum amount you could receive for the EIC is:

  • $6,660 with three or more qualifying children
  • $5,920 with two qualifying children
  • $3,584 with one qualifying child
  • $538 with no qualifying children

To qualify for the credit, your taxable income must be below a specific threshold, based on your tax filing status. You can only receive the Earned Income Tax Credit if you file a tax return.

Click here to see if you qualify for the Earned Income Tax Credit.

2. Saver’s Credit

The federal government likes to encourage people to save money. Generally speaking, a healthy economy features a large percentage of people who are saving money for the future. To encourage this activity, there are tax advantages to making certain kinds of investments. One of those advantages is known as the Saver’s Credit.

Simply put, you can gain a tax advantage by putting away money for your retirement. Specifically, if you make eligible contributions to your IRA, or to your employer-sponsored retirement plan, you may be able to claim a credit on your return. The value of this credit will depend on the amount of your contribution, as well as your filing status and your annual income. The maximum credit amount is $2,000.

 3. Child and Dependent Care Credit

Your eligibility for this credit will depend on a couple of factors. For one thing, the childcare must have been used in order to allow you to work or actively look for work. Also, you will not be eligible for this credit if you are married and filing separately.

If you do qualify for the credit, it will be a percentage of the total work-related childcare expenses you incurred. That percentage will be determined by adjusted gross income. You will be able to claim a maximum of $3,000 in expenses for one qualifying dependent, or a maximum of $6,000 for two or more dependents.

 4. Child Tax Credit

The Child Tax Credit is a tax credit worth $2,000 per qualifying dependent. There is no limit to the number of dependents you can claim to receive the credit. So, if you have three qualifying dependents, you can receive $6,000 for the Child Tax Credit (3 x $2,000 = $6,000).

This credit is partially refundable up to $1,400. What this means is, if you owe $0 for taxes, you can get up to $1,400 of this credit added to your tax refund. If you are claiming more than one child, you’ll get $1,400 per credit back.

To qualify as a dependent for this credit, a child must under the age of 17 at the end of the tax year. The child must also be claimed as a dependent on your return, meaning each child you claim must meet all of the requirements for being considered a dependent.

 5. Energy Credits

The Residential Energy Efficient Property Credit is used as an incentive to motivate homeowners to make eco-friendly changes to their property.

For instance, if you have installed solar panels on your home, you may be eligible for a tax credit (often referred to as “solar credits”). But solar panels are just one example of ways in which you may be able to qualify for a home efficiency tax credit.

Read the full requirements for claiming the Residential Energy Efficiency Property Credit.

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