What Types of Tax Credits Are Available and How Do They Work?

There are several general types for tax credits:

• Energy credits, including the Residential Energy Credit
• Education credits—like the Hope or Lifetime Learning credits
• Credits connected to children, such the Child Tax Credit
• Income-based credits include the Earned Income Credit

Tax credits are non-refundable or refundable.

• A refundable credit not only guarantees you receive a tax return from the IRS but also may lower to zero any tax you owe. The Additional Child Tax Credit, for instance, is a refundable credit, so if your tax obligation is zero, you can get a refund for the leftover portion of the credit.
• A non-refundable credit can only reduce your tax obligation to zero. Any credit amount beyond the tax you owe is simply null. The Adoption Expenses Credit, whose unused amount may be carried forward to the following year, is the only exception to this policy.

Apart from these general categories, there are other credits, including:

• Saver’s Credit: By use of an IRA or employer-sponsored retirement plan, Saver’s Credit enables low- and moderate-income people to save for retirement.
• Premium Tax Credit: Available to those who buy health insurance on the Health Insurance Marketplace and satisfy certain income criteria.
• American Opportunity Credit: This is a credit for eligible college costs for students in their first four years of higher study.

These credits can occasionally result in a return and certainly lower your tax liability. To ensure you may claim each credit, nevertheless, you must be aware of the particular qualifying criteria.

This entry was posted on Sunday, April 6th, 2025 at 12:15 am and is filed under Credits, Tax Related Questions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.