There are many tax credits and incentives available to individuals that can help reduce the amount of tax they owe or increase the amount of their tax refund. Dollar figures below are for tax year 2022 and are adjusted most years, so check the current amount before relying on one. Here are some of the top tax credits and incentives for individuals:
- Earned Income Tax Credit (EITC): This credit is available to low- and moderate-income taxpayers who have earned income from employment or self-employment. The amount of the credit is based on the taxpayer's income, the number of qualifying children they have, and their filing status.
- Child and Dependent Care Credit: This credit is available to taxpayers who pay for the care of a qualifying child or dependent so that they can work or look for work. The credit is based on the amount of care expenses paid and the taxpayer's income.
- American Opportunity Tax Credit (AOTC): This credit is available to taxpayers who are paying for higher education expenses for themselves or a dependent. The credit is worth up to $2,500 per eligible student and can be claimed for the first four years of postsecondary education.
- Lifetime Learning Credit: This credit is available to taxpayers who are paying for higher education expenses for themselves or a dependent. The credit is worth up to $2,000 per tax return and can be claimed for an unlimited number of years.
- Saver's Credit: This credit is available to taxpayers who make contributions to a retirement account, such as a 401(k) or IRA. The credit is worth up to $1,000 for individuals and $2,000 for married couples filing jointly and is based on the taxpayer's income and the amount of their contribution.
- Adoption Credit: This credit is available to taxpayers who adopt a child and pay qualifying adoption expenses. The credit is worth up to a per-child maximum that the IRS indexes each year, and it is subject to income limits.
- Mortgage interest and property taxes — a deduction, not a credit: Homeowners who itemize can deduct these, which lowers taxable income rather than tax owed. The difference matters. A $1,000 credit cuts your tax bill by $1,000; a $1,000 deduction cuts it by your marginal rate.
- Charitable contributions — also a deduction: Donations to qualifying organizations reduce taxable income, and only if you itemize rather than take the standard deduction. Keep the acknowledgment letter for anything over $250; without it the deduction does not survive an examination.
- Credit for the Elderly or the Disabled: This credit is available to taxpayers who are at least 65 years old or are permanently and totally disabled. The credit is based on the taxpayer's income and is subject to income limits.
It's important to note that not all tax credits and incentives are available to every taxpayer. Some credits and incentives have income limits or other restrictions that determine who is eligible to claim them. It's always a good idea to consult with a tax professional or use tax preparation software to determine which credits and incentives you may be eligible for.
This post is general information about federal and state tax rules, not advice about your situation. Rules change. Check the date above before you rely on anything here, and talk to us about your own facts.