Tax credits and deductions allow you to use every tax benefit you are eligible for. Discover more about non-refundable and refundable tax credit options in this article, about the difference between tax credits and tax deductions, how these methods of reducing taxes affect your tax return and how to claim them.
A tax credit is an amount of money that taxpayers subtract from the total amount of taxes they owe their state government. This tax incentive lowers your tax liability dollar-for-dollar, whereas a tax deduction reduces your overall amount of taxable income, and you are not eligible to get money back from a deduction.
A refundable tax credit is paid back to the taxpayer regardless of the individual’s liability, whereas a non-refundable tax credit only reduces this person’s liability to zero.
Generally, tax credits save you more money than deductions. Tax deductions are intended to reduce the amount of your income subject to tax, while tax credits directly reduce the total amount of tax. See the difference between these two tax incentives below:
If we apply a tax deduction
If we claim a tax credit
The following tax credits are among the most relevant for the taxpayer. Decide which credit to choose from, whether you want to invest in your education, prepare for retirement, cover expenses of raising children with the help of various tax credits for parents, or build a better future for your family and the world with renewable energy tax credits.
If you have young children or other dependents, you may qualify for different types of child tax credits. Lower your tax bill so that you can receive a tax refund in the form of a mailed check or a deposit into your bank account.
Child tax credits are for individuals with children, regardless of their employment status. The amount you can claim depends on your income, marital status, birth dates of your children, your working hours, and whether or not you have a disability or qualify for sickness benefits.
From $211,160 to $251,160
The IRS Form 8863 is the basic form to file for Education credits. If you are pursuing higher education, you are eligible to receive a tax credit that will reduce the costs and expenses you will have to pay. Find the main differences between the education tax credits in our table:
American Opportunity Tax Credit (AOTC)
Lifetime Learning Credit (LLC)
Maximum amount of money available
$2500 per each qualified student
$2000 per tax return, regardless of the number of students
4 educational years
Unlimited years if you are receiving higher education
Refundable tax credit
Non-refundable tax credit
Modified Adjusted Gross Income
Less than $80,000 (filing singly) and $160,000 (filing jointly)
Less than $65,000 (filing singly) and $131,000 (filing jointly)
There is a special tax credit designed for low- and moderate-income taxpayers, the Saver’s Credit. It provides individuals with a special tax break. They are allowed to claim the credit for a share of the income contributed to a qualifying retirement plan. The maximum amount of credit is $1,000 ($2,000 if you are married filing jointly). Requirements to qualify for this credit are as follows:
File IRS Form 8880, Credit for Qualified Retirement Savings Contributions with your standard tax return - Form 1040 or Form 1040NR.
Use IRS Form 5695 to figure and take your residential energy credits. The two main green energy tax credits used to make certain improvements to homes and install appliances designed to boost the energy efficiency of the house are as follows: