8 Common Tax Credits That Could Save You Money (If You Know About Them)

Nobody likes paying taxes, but you can lower the amount of money you owe to the federal government by claiming tax credits.

You may be eligible for thousands of dollars in tax relief. Taking the time to learn a bit more about such credits is one of the smartest ways to get ahead financially.

Here are some commonly used tax credits you need to know about before you file a return.

A tax credit directly lowers your tax bill. So, if you qualify for a $1,000 tax credit and owe $5,000 in taxes, the credit would bring your bill down to $4,000.

A tax credit is even better than a tax deduction because a deduction merely lowers your taxable income. If your tax rate is 12% and you qualify for a $1,000 deduction, you will pay $120 less in taxes. That is a much smaller amount of savings than you would get with an equivalent tax credit.

There are three types of tax credits: nonrefundable, refundable, and partially refundable.

Nonrefundable tax credits reduce your tax bill only to the extent of the taxes you owe. If the tax credit is larger than the amount you owe in taxes, you will not get any leftover money as a refund.

On the other hand, a refundable tax credit will pay you a refund if the credit amount exceeds what you owe in taxes. This means if you owe $500 in taxes but qualify for a $1,000 refundable tax credit, you could get $500 back as a refund.

A partially refundable credit decreases your tax bill by the amount of the credit, plus you might get a refund for a portion of any credit that remains beyond what you owe in taxes.

Here are the commonly used credits you should know.

The child tax credit can save you up to $2,000 for each child in your household. For example, if you have three children, the child tax credit might shave up to $6,000 off your tax bill.

Keep in mind that to qualify for the credit, your child must have been under the age of 17 at the end of the tax year for which you claim the credit.

There are other rules you must meet to qualify for the full amount of this credit, including having a modified adjusted gross income of $400,000 or less if you are married filing jointly, or $200,000 or less for other filers.-

If you are married filing jointly and your adjusted gross income was $66,819 or less in 2024 (or $59,899 for other filing statuses) and you made less than $11,600 from investment income, dividends, and capital gains, you may be eligible for the earned income tax credit.

This credit can save you up to $7,830 and is refundable. That means someone with a $4,000 tax bill would owe nothing in taxes and could pocket an extra $3,830.

The amount of your credit depends on a number of factors, including your tax-filing status, income, and number of dependents.

Depending on your income, you may be eligible for the premium tax credit if you buy health insurance from the federal marketplace or a state-based version of the marketplace.

This refundable benefit offsets the cost of health insurance premiums from qualified health insurance marketplace plans.

The formula for determining whether you qualify for a tax credit has gotten a bit complicated, but your marketplace should offer help in making this calculation.

Those with relatively modest incomes can claim a saver's credit that can reduce their tax bill for up to 50% of the first $2,000 they contribute to a retirement account. The maximum credit is $1,000.

Your income and tax filing status will determine how much you can claim as a credit. You typically qualify if your adjusted gross income was no more than $76,500 if married and filing jointly, $57,375 if filing as head of household, or $38,250 if filing as single.

The federal government offers a pair of education tax credits — the American Opportunity (up to $2,500) and the Lifetime Learning (up to $2,000) credits — that can help offset the cost of tuition, books, supplies, and more.

One of these credits — but not both — can be claimed for each student.

Adopting a child is expensive. Fortunately, you can be credited up to $16,810 in adoption costs per child.

Some companies offer adoption benefits to their employees, and the government allows you to exclude up to $16,810 of these perks from your income.

It's important to note that adopting your spouse's child does not make you eligible for the credit.

If your child has special needs, you may qualify for the full credit amount even if your actual expenses were less than the credit.

Do you pay someone to care for your child or family member while you're at work? If so, you may qualify for the child and dependent care credit.

The credit is available for up to $3,000 per dependent, or $6,000 for two or more dependents.

Generally, dependents must be 13 or younger. However, an older person may qualify if the dependent person lived with you for at least half the year and if the individual was incapable of caring for their own needs.

You can be credited up to 35% of your qualifying expenses, according to the IRS. So, if you spent $3,000 for someone to care for your family member while you were at work, you might get a credit of up to $1,050.

You can get as much as $3,200 back from the government for making energy efficiency upgrades to your residence.

You can be credited for 30% of your qualifying expenses up to that amount when you improve a home's energy efficiency.

Two-thirds of U.S. taxpayers say they spend too much on federal income taxes, according to a 2024 poll from the University of Chicago Harris School of Public Policy and The Associated Press-NORC Center for Public Affairs Research.

If you feel the same way, take advantage of common tax credits so you spend less in taxes. Growing your knowledge of taxes and other aspects of personal finance can be a lucrative way to build wealth.