Unlike tax deductions, which only lower your taxable income, tax credits are deducted dollar for dollar from the amount of taxes you owe. Take a look at the 3 largest tax credits to see if they apply to you.
1. EITC—the tax credit you earn by working
If you work and especially if you have kids, you need to check your eligibility for the Earned Income Tax Credit (EITC), whether you believe you’re eligible or not. Created in 1975 as an incentive for people to work, the EITC can pay big dividends for your family if your income is moderate-to-low. For example, in 2019 a married couple with three children and adjusted gross income of $55,592 or less could receive a credit up to $6,557. The amount of the EITC is based on your income, the number of children you have (you can get it even if you have no children), and your filing status—whether it’s single, head of household or married filing jointly. Here are some of the eligibility rules.
- You must be 25 years old (or older) and under 65 years old to qualify.
- If you’re married, both you and your spouse must possess a valid Social Security number.
- You and your spouse (if married) must have resided inside the USA for a period greater than six months during the tax year.
- You must not be eligible to be claimed on someone else’s tax return as a dependent.
In addition, you won’t eligible to receive an EITC if:
- Your tax status is married filing separately.
- More than $3,600 of your income (tax year 2019) came from investments.
You might be eligible for the EITC even if you are self-employed.
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2. More credits from dependents
If you’re like most Americans with kids, you’re paying for daycare or babysitting while you’re working (or looking for work). The Child and Dependent Care Credit lets you deduct some of those costs directly from the amount of tax you owe. You may qualify for this credit if you’re paying for babysitting or childcare for any dependents who are age 12 or younger while you work or search for a job. You also may be eligible for the credit if you’re paying for the care of your spouse or for any dependent, regardless of age, who is mentally or physically incapable of caring for themselves.
- To be eligible, you must file as married filing jointly, single, or head of household. You can also be eligible if filing as a Qualifying Widower or Qualifying Widow with a child who also qualifies.
- The credit may provide up to a maximum of 35% of your qualifying child or dependent care expenses, depending on your adjusted gross income (AGI).
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3. Credit for saving
If you contribute to a qualified retirement plan, such as a 401(k), 403(b), 457 plan, or Simple IRA, you may be eligible for the Savers Tax Credit. The credit is worth up to $1,000 if your filing status is single, or up to $2,000 if you’re married and file jointly. The credit is greatest for lower income tax filers and phases out entirely at higher incomes.
- To be eligible on your 2019 tax return, your income can’t exceed $32,000 if you file as single; it can’t exceed $48,000 if you file as head of household; and it can’t exceed $64,000 if you’re married and file jointly.
- You must be 18 years old or older to be eligible for the Savers Tax Credit.
- To qualify, you can’t be a full-time student at any time during the calendar year and you can’t be claimed on another tax filer’s return as a dependent.
These are just some of the credits you may be eligible to receive. To learn more about the biggest tax credits, visit TurboTax.com.