Tax credits reduce tax dollar-for-dollar, which makes them more valuable per dollar than deductions. Every year, households leave credits on the table because they do not know the credit exists. The Scholar should know the list of the household credits worth pursuing.
- 01List the household credits worth pursuing.
- 02Distinguish refundable from nonrefundable credits.
- 03Identify the credits with income phase-outs.
The list
Child Tax Credit and Additional Child Tax Credit. Earned Income Tax Credit. Child and Dependent Care Credit. American Opportunity and Lifetime Learning credits for education. Saver's Credit. Residential Clean Energy Credit. Adoption Credit. Each has phase-outs and eligibility rules; check the current-year IRS publication before assuming eligibility.
Refundable versus not
A refundable credit is paid to the household even if it exceeds the tax owed. A nonrefundable credit reduces tax to zero but no further. EITC and ACTC are refundable; most others are not. Refundable credits materially benefit low-income households.
- Credits are more valuable per dollar than deductions.
- Refundable credits pay households that owe no tax.
- Read the current publication; rules change annually.