Tax credit is one of the most satisfying benefits you can get while preparing your return. Unlike deductions, which reduce the income you’ll be taxed on, tax credits lower your overall taxes. The result could mean hundreds of dollars written off your bill — or added to your refund. “With the credit, you get 100% leverage,” says Andrew King, vice president of tax policy and research at Goldman Sachs GS, -3.09% Ayco Personal Financial Management Co., New York. “It’s a full refund of the tax you would otherwise have to pay.” Some tax credits apply to a broad segment of the population, while others are specific to promoting specific economic activity. Before you file your return, here are some tax credits you may want to review. 1. Earned Income Tax Credit The Earned Income Tax Credit, or EITC, is one of the most common income tax breaks, designed to help reduce the burden for middle- and low-income families. For the 2021 tax year, 4 out of 5 filers claimed this tax credit, with an average benefit of $2,000. The total value of those credits was about $64 billion, the IRS said. Even better, the EITC is known as a “refundable” tax credit. That means if the amount of the credit is more than your taxes, the government will pay you the difference. Are you eligible? As its name suggests, eligibility for the EITC is largely based on your income, and you have to work to earn the credit. For the 2022 tax year, the income limit ranges from $16,480 to $59,187, depending on your filing status. There are some other requirements, including: You cannot have more than $10,300 in investment income. Everyone must have a valid Social Security number on your tax return.
plus: ‘Only the wealthy get any benefit from giving financially to nonprofits’: Bipartisan bill aims to help more Americans ditch charitable donations2. Child tax credit If you’ve used the Child Tax Credit, or CTC, in the past, it’s important to remember that there have been some significant changes to this benefit for families with children. During the pandemic, the government temporarily increased the amount of the credit, providing thousands of dollars in additional relief to some families. But in 2022, the credit returned to its previous level. Taxpayers who saw a big refund last year because of the credit may be disappointed when they file this time. However, CTC can take a significant chunk out of your tax bill. The benefit can reach up to $2,000 per qualifying child and up to $1,500 of that is refundable. People with dependents who do not qualify for the full credit may be eligible for a credit of up to $500.Are you eligible? Families with children under 17 are generally eligible for the child tax credit as long as their children have valid Social Security numbers. However, the amount you can claim depends on your income. The credit begins to phase in once your adjusted gross income exceeds $200,000, or $400,000 for married people filing jointly. At a certain income level, the benefit ends completely. Also Read: Parents: Take a fresh look at these recurring expenses for your kids this year3. American Opportunity Credit and Lifetime Learning Credit The American Opportunity Credit and the Lifetime Learning Credit are two education-focused tax breaks that help people with expenses like tuition. Both credits have a similar setup, but cater to different types of spending. American Opportunity Credit is targeted toward students pursuing formal degree programs. On the other hand, lifelong learning credits can be used for other types of training and education. The partially refundable American Opportunity Credit is also more generous: Taxpayers can claim up to $2,500 per eligible student, which includes non-tuition costs such as course materials. With the nonrefundable Lifetime Learning Credit, you can claim a total of $2,000 per tax return for tuition only, regardless of how many students are eligible. You cannot claim both credits for one student. to read: Worried about small income tax refunds? You may have good reason — refunds are already down 11% so far this yearAre you eligible? The eligibility criteria for these two education credits are different. For example, the American Opportunity Credit can only be used for four years of post-secondary education, and eligible students must be enrolled at least half-time. Lifetime learning credits are more comprehensive, and can be applied to graduate courses or vocational classes. Basic eligibility requirements in credit are common. Both share an income limit of $90,000 for single filers and $180,000 for married people filing jointly. More from NerdWallet Andy Rosen writes for NerdWallet. Email: firstname.lastname@example.org. Twitter: @https://twitter.com/andyrosen.