Tax Credits
The tax code has a variety of tax credits that apply to many tax payers returns. Some credits are refundable while others will only reduce the amount of tax that you owe, or how much of your money the government keeps.
A refundable credit can increase the amount of refund you receive or reduce the amount you owe. A non refundable credit will only reduce your tax to 0 but will never increase your refund.
Some common and not so common credits:
Child Tax Credit: A credit of up to $1000 per child for every dependent child under the age of 17. Non refundable.
Additional Child Tax Credit: It is a Refundable Credit for certain taxpayers who did not receive the full credit on the Child Tax Credit due to tax Liability.
Child and Dependent Care Credit: Non refundable. Credit for day care paid for a dependent individual under the age 14 or disabled.
Retirement or Savers Credit: Non refundable credit for taxpayers who contribute to a retirement plan either thru the employer or privately. Income limits apply.
Education Credits: Non refundable. Lifetime Credit is for the taxpayer, spouse or dependent on the return who is attending a certificate, degree or other qualifying education program.
Partially refundable and Non Refundable. American Education Opportunities Credit is for taxpayer, spouse or dependents enrolled in a degree program, who have not received a prior degree, for the first four years of education. Qualifications apply.
Earned Income Tax Credit: Refundable: This is probably one of the most commonly know credits. It is a refundable amount calculated for married or single taxpayers with or without dependent children. Income restrictions and filing qualifications are strictly monitored and enforced.
Credits are always better than a deduction on your return. A Credit is a dollar for dollar reduction in your tax liability. A deduction only reduces your income that tax is calculated on.
A $1000 credit will reduce your taxes by $1000 while a $1000 deduction will change your tax by $150 if you are in the 15% tax bracket.