There are a wide variety of income tax credits at both the state and federal levels that can be taken advantage when filing tax returns. Unlike tax deductions, which reduce the amount of taxable income, income tax credits directly reduce a tax bill. Of course, each of these has many stipulations, and the average person usually will be eligible for only a few of them each year, if any. It is important when filing taxes to know what income tax credits are available based on income, filing status, purchases made throughout the year, and more. More details on the following income tax credits can be found through the website of the IRS, a professional tax service, or even on a computer tax program.
The earned income tax credit, or EITC, is one of the most common tax credits and is usually available to families with low to moderate incomes. The amount of money credited for the EITC generally increases with the amount of child dependents. This credit has a wide bipartisan popularity as a governmental anti-poverty tool.
The Child Tax Credit offers a reduction in the amount of tax owed for each child under the age of 17 in the household of the tax filer. There are several criteria to be met when claiming this credit, such as income, alternative minimum tax owed, time living with the child or children and more. In some instances, the Child Tax Credit can even be claimed as a refund depending upon the circumstances of the return. Other income tax credits that are available based on children in a given household are the Adoption Tax Credit and the Child and Dependent Care Tax Credit.
The Saver’s Tax Credit is available to low income households that also save with a qualifying retirement plan. Some examples of retirement plans this includes are 401(k) plans, SEP plans, SIMPLE plans, and the governmental 457 plan, as well as Roth and Traditional IRAs. The size of this tax credit is dependent upon the amount saved in addition to the filer’s adjusted gross income.
The Health Coverage Tax Credit (HCTC) was created in 2002 to help workers, retirees and their respective families to pay for health insurance. This credit pays eligible filers for 65 percent of their health insurance premiums, and is a refundable tax credit, meaning it is paid in full regardless of how much tax is owed. This credit is also available on a monthly basis in order to help those in need to pay for their health insurance as soon as the bills are due.
There are many more income tax credits available for a wide variety of reasons. Some of the more notable ones include the Foreign Tax Credit, the First-Time Homebuyer Credit, the Alternative Minimum Tax (AMT) credit and more. It is important to be sure that you are eligible for any income tax credits that you are filing for. If you are not sure that you are eligible, there are many professionals who can help you.