Tax credits reduce the amount of taxes you owe. If you qualify for one or more tax credits, you either reduce your taxes or get a refund. Filing a tax return is mandatory to claim tax credits. Even if you don’t owe any taxes, you can still file a return to claim tax credits and get a refund.
Many of the tax credits are focused on middle and low income groups to help them reduce their tax liability. Every tax credit comes with certain qualifying factors. With the tax filing deadline extended till July 15, 2020, it’s a good time to check if you qualify for any of these major 5 tax credits shared by AOL.
1 – EARNED INCOME TAX CREDIT
One of the most substantial credits for taxpayers is the Earned Income Tax Credit. Established in 1975–in part to offset the burden of Social Security taxes and to provide an incentive to work–the EITC is determined by income and is phased in according to filing status: single, married filing jointly or either of those with children. Eligibility and the amount of the credit are based on adjusted gross income, earned income and investment income.
- A person must be at least 25 years old and younger than 65 to qualify.
- If married, both spouses must have valid Social Security numbers and must have lived in the country for more than six months.
- If you may be claimed as a dependent on another filer’s tax return, you do not qualify.
You won’t qualify for the EITC if:
- You’re married filing separately.
- You earned $3,600 or more in 2019 from investment income. That is considered “disqualified income” and you cannot qualify for the credit.
- If you’re self-employed, you may qualify for the EITC. Tax experts recommend you check your eligibility every year, even if you think you won’t qualify.
2 – AMERICAN OPPORTUNITY TAX CREDIT
For years, the Hope Credit helped families pay the costs of higher education. Since 2009, that credit has been rebranded and expanded as the American Opportunity Tax Credit.
- The AOTC covers four years of post-secondary education.
- The full credit is available to people whose modified adjusted gross income (MAGI) is $80,000 or less, or $160,000 or less for married couples filing jointly.
- Depending on your income (the credit drops as income increases), you may receive up to $2,500 of the cost of qualified tuition and course materials paid during the taxable year.
- The student must be enrolled at least half-time for at least one academic period.
- This credit is available on a per-student basis.
3 – LIFETIME LEARNING CREDIT
The Lifetime Learning Credit, also established to offset the costs of post-secondary education, differs from the American Opportunity Tax Credit in that it is available for any years of post-secondary education, not just the first four. Also, the credit is available for people not pursuing a degree.
- The Lifetime Learning Credit may be as high as $2,000 per eligible student.
- For 2019 the full credit is available to eligible individual taxpayers who make $58,000 or less, or married couples filing jointly who make $116,000 or less.
- The credit phases out as income goes beyond these amounts.
4 – CHILD AND DEPENDENT CARE CREDIT
The Child and Dependent Care Credit helps defray costs of babysitting or daycare. It’s available to people who must to pay for childcare for dependents under age 13 in order to work or look for work. The credit is also available for the cost of caring for a spouse or a dependent of any age who is physically or mentally incapable of self-care.
- To qualify, your filing status must be single, married filing jointly, head of household or qualifying widow or widower with a qualifying child.
- The credit provides up to 35% of qualifying expenses, depending on adjusted gross income (AGI).
5 – SAVERS TAX CREDIT
The Savers Tax Credit, formerly the Retirement Savings Contributions Credit, is for eligible contributions to retirement plans, such as qualified investment retirement accounts, 401(k)s and certain other retirement plans. Taxpayers with the least income qualify for the greatest credit–up to $1,000 for those filing as single, or $2,000 if filing jointly.
- For 2019 the maximum income for the Savers Tax Credit is $32,000 for single filers, $48,000 for heads of household, and $64,000 for those married and filing jointly.
- Filers must be at least 18 years old and may not have been a full-time student during the calendar year or claimed as a dependent on another person’s return.”