Federal tax credits for individuals

From Bogleheads

Tax credits for individuals can reduce your tax liability. They fall into two main groups: refundable tax credits, and non-refundable tax credits.

Tax credits

Tax credits are often advantageous because you subtract them, dollar for dollar, from the tax you owe. In contrast, a tax deduction reduces your income tax due by your marginal tax rate. Tax credits often have limitations, such as age requirements, or by taxpayer income levels.

The most common tax credits for investors are the saver's credit that applies (subject to income limitations) if you make contributions to retirement savings plans, and the foreign tax credit, which applies if you hold international securities in taxable accounts.

If you use tax-deferred education savings plans, such as 529 plans and Coverdell Education Savings Accounts, or use U.S. savings bonds for paying college costs, consider coordinating payments with the two education tax credits, the Lifetime Learning Credit and the American Opportunity Tax Credit.

Refundable tax credits

Your tax liability does not limit a refundable tax credit.[1] This means that you get a refund from this tax credit even when it is more than the tax you owe.[2]

Only a few federal individual tax credits are refundable. Refundable credits include the Earned Income Tax Credit, the Premium Tax Credit (Affordable Care Act), the credit for Excess Social Security and RRTA Tax Withheld, and the Child Tax Credit.

The American Opportunity Tax Credit is a partially refundable tax credit (40% of the credit, up to $1,000).[3]

Non-refundable tax credits

The majority of federal individual tax credits are non-refundable. A non-refundable tax credit tax cannot reduce the tax you owe to less than zero.[4] A nonrefundable tax credit means you get a refund only up to the amount you owe for taxes.[2]

Lists of federal tax credits for individuals

The lists below show links to IRS source pages for various federal tax credits.

Family and dependents

Health care

Income and savings

Education

Homeowners

Electric vehicle credit

See also

References

  1. "Refundable Credit: What it is, How it Works". Investopedia. Retrieved October 1, 2023.
  2. 2.0 2.1 "Credits and Deductions for Individuals". IRS. Retrieved October 1, 2023.
  3. "American Opportunity Tax Credit: Questions and Answers". IRS. Retrieved 19 February 2015.[dead link]
  4. "Nonrefundable Tax Credit: Definition, How It Works, and Benefits". Investopedia. Retrieved October 1, 2023.

External links