Tax Credits ease the Tax Pain
Taxes are worse than bills on the pain scale. But tax credits can ease the pain, sometimes substantially. A tax credit reduces the amount of tax you must pay. A refundable tax credit not only reduces the federal tax you owe, but also could result in a refund.
Here are five credits that may apply to your return:
1. The Earned Income Tax Credit is a refundable credit for people who work and don’t earn a lot of money. The maximum credit for 2012 returns is $5,891 for workers with three or more children. Eligibility is determined based on earnings, filing status and eligible children. Workers without children may be eligible for a smaller credit. If you worked and earned less than $50,270, you may qualify. See IRS Publication 596, Earned Income Credit.
2. The Child and Dependent Care Credit is for expenses you paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent. The care must enable you to work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.
3. The Child Tax Credit may apply to you if you have a qualifying child under age 17. The credit may help reduce your federal income tax by up to $1,000 for each qualifying child you claim on your return. You may be required to file the new Schedule 8812, Child Tax Credit, with your tax return to claim the credit. See IRS Publication 972, Child Tax Credit.
4. The Retirement Savings Contributions Credit (Saver’s Credit) helps low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or a retirement plan at work. The credit is in addition to any other tax savings that apply to retirement plans. See IRS Publication 590, Individual Retirement Arrangements (IRAs).
5. The American Opportunity Tax Credit helps offset some of the costs that you pay for higher education. The AOTC applies to the first four years of post-secondary education. The maximum credit is $2,500 per eligible student. Forty percent of the credit, up to $1,000, is refundable. You must file Form 8863, Education Credits, to claim it if you qualify. See IRS Publication 970, Tax Benefits for Education.
Make sure you qualify before claiming any tax credit. If you have questions regarding qualification, contact your tax preparer or visit IRS.gov to learn about the rules. The free IRS publications mentioned above are also available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).