Understanding Your Tax Credits
A plain-English guide to the credits that could reduce your tax bill this year.
Refundable vs. Non-Refundable Credits, Explained
A common question we hear is: what's the difference between a refundable and non-refundable tax credit? The tax code includes a variety of tax credits that apply to many taxpayers' returns. Some credits are refundable, meaning they can increase your refund or reduce what you owe below zero. Others are non-refundable, meaning they can only reduce your tax bill down to $0 but will never generate money back beyond that.
Knowing which category a credit falls into matters for your specific return. That's why R.L. Johnson Tax Services, the tax preparation division of R.L. Johnson Financial Center serving Harrison, Cincinnati, and Southwest Ohio, walks each client through which credits actually apply to their household before filing.
Common Tax Credits You May Qualify For
Every tax situation is different, so not every credit applies to every return — here are some of the most common ones our clients ask about.
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 of 14 or who is disabled.
Retirement or Savers Credit
Non-refundable credit for taxpayers who contribute to a retirement plan either through an 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 nonrefundable. American Education Opportunities Credit is for the 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 known 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.
Why a Credit Beats a Deduction
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.
Not Sure Which Credits Apply to You?
Every household's situation is different — the fastest way to know which credits fit yours is to talk it through with someone who knows the tax code and knows you.
Let's Talk About Your Tax Return
Whether you're claiming a credit for the first time or want a second look at last year's return, R.L. Johnson Tax Services is ready to help — call or reach out online today.
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