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Tax credit sampler

A tax credit reduces the amount of income tax you may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself.

Most tax credits are nonrefundable: If the credit amount exceeds the tax owed, no refund is given. Refundable credits are different: If the credit amount exceeds the tax owed, a refund may be due to the taxpayer.

While not a comprehensive list, the following personal tax credits are of general interest to individuals (for businesses, see General Business Tax Credits):

Credit Description Form to use with 1040
Personal Credits -- Nonrefundable
Child and dependent care credit (TX10-25-0500) If you paid someone to care for a qualifying individual so you (and your spouse if you are married) could work or look for work, you may be able to claim this credit. The credit is a percentage, based on your adjusted gross income, of the amount of work-related child and dependent care expenses you paid to a care provider. You may use up to $3,000 of the expenses paid in a year for one qualifying individual, or $6,000 for two or more qualifying individuals. These dollar limits must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from your income. Form 2441
Credit for the elderly or the disabled (TX10-25-1000) You may be able to take the credit for the elderly or the disabled if:
  • You're age 65 or older and meet certain income requirements, or
  • You're under age 65, retired on permanent total disability, and received taxable disability income during the year

Schedule R

Schedule 3 for 1040A filers

Foreign tax credit (TX10-25-2000) This credit is intended to reduce the double tax burden that would otherwise arise when foreign-source income is taxed by both the United States and the foreign country from which the income is derived. Generally, only income taxes paid or accrued to a foreign country or a U.S. possession, or taxes paid or accrued to a foreign country or U.S. possession in lieu of an income tax, will qualify for the foreign tax credit. Qualified foreign taxes do not include taxes that are refundable to you or taxes paid to countries whose government is not recognized by the United States. You can choose to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. Form 1116 (or Schedule A of Form 1040 if taken as an itemized deduction)
Adoption tax credit (TX10-25-2500) You may be able to take a tax credit of up to $12,150 in 2009 ($11,650 in 2008) for qualifying expenses paid to adopt an eligible child. The credit is not available for any reimbursed expense. In addition to the credit, up to $12,150 in 2009 ($11,650 in 2008) paid or reimbursed by your employer for qualifying adoption expenses may be excludable from your gross income. The credit and exclusion for qualifying adoption expenses are each subject to an income limit. Form 8839
Credit for contributions to retirement plans and IRAs (saver's credit) (TX10-25-5000) If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA), you may be able to take a tax credit. The amount of the saver's credit you can get is based on the contributions you make, your credit rate, and your adjusted gross income (AGI). If you qualify for the credit, your credit rate can be as low as 10% or as high as 50%, depending on your AGI. Your credit rate also depends on your filing status. The maximum contribution taken into account is $2,000 per taxpayer. On a joint return, up to $2,000 is taken into account for each spouse. Form 8880
Lifetime learning credit (ED25-40-1000) You may be able to claim this credit of up to $2,000 in 2009 (same for 2008) for qualified tuition and related expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years for which this credit can be claimed for each student. The student does not need to be pursuing a degree or other recognized educational credentials. The credit is available for one or more courses, and the felony drug conviction rule does not apply. Form 8863
Non-business energy property credit (TX10-25-5500) You may qualify for this $1,500 (maximum lifetime) credit if you make certain energy efficient improvements to--or install certain energy efficient property in--your principal residence in 2009 or 2010. The tax basis of your home is reduced by the amount of the credit you take. The credit was not available for 2008, and different rules and limits applied to years before 2008. Form 5698
Residential energy efficient property credit (TX10-25-5500) You may be eligible for a 30 percent tax credit for the purchase of qualified solar electric property and qualified solar water heating property (used exclusively for purposes other than heating swimming pools and hot tubs), as well as qualified geothermal heat pumps, qualified small wind energy property, and qualified fuel cell power plants. Special limits apply to qualified fuel cell power plants. The tax basis of your home is reduced by the amount of the credit you take. Available through 2016. (Note: Different limits and rules applied to years before 2009.) Form 5698
Credit for qualified clean-fuel vehicles (TX10-25-3000) A combination of four credits: the hybrid vehicle credit, the advanced lean-burn technology vehicle credit, the alternative fuel vehicle credit, and the credit for vehicles powered by fuel cells. The maximum credit for a hybrid or advanced lean-burn technology passenger car or light truck is $3,400, and is available in 2006 through 2010. The maximum credit for an alternative fuel (or clean-fuel) passenger car or light truck is $4,000, and is available in 2006 through 2010. The maximum credit for a fuel cell passenger car or light truck is $12,000, and is available in 2006 through 2014. This credit is available whether you buy or lease. Form 8910
Credit for plug-in electric vehicles Plug-in electric cars with at least a 4-kilowatt-hour battery pack will be eligible for a $2,500 credit, with an additional $417 for each additional kilowatt-hour of battery capacity, up to $7,500. The first 250,000 vehicles sold can get this tax credit. Available in 2009. New rules and limits apply to qualifying vehicles purchased after December 31, 2009. TBA
Personal Credits -- Refundable
Earned income credit (TX10-25-3500) This is a special credit for certain lower-income people who work. The amount of the credit is based on your adjusted gross income (AGI), your filing status, and the number of qualifying children you have (if any). If you have at least one qualifying child, attach Schedule EIC.
Child tax credit (TX10-25-4500) This is a credit of $1,000 for each qualifying child you claim on your return. The credit may be used to reduce the full amount of your regular tax and alternative minimum tax liability. (A portion of the child tax credit may be refundable.) The credit is limited if your modified adjusted gross income is above a certain amount.

Depending on types of income, other credits, and/or AGI, the worksheet in Publication 972.

To claim the refundable portion of the child tax credit, use Form 8812.

Hope credit (ED25-40-0500)(renamed the "American Opportunity" tax credit for 2009 and 2010) You may be able to claim this credit of up to $2,500 in 2009 and 2010 for qualified tuition and related expenses paid for each eligible student. This credit is available for the first four years of post-secondary education. An eligible student must be enrolled at least half-time for at least one academic period during the year, and have no felony drug conviction on his or her record. The credit is subject to an income limitation. Up to 40 percent of the credit is refundable. (Note: Different limits and rules apply to years before 2009 and after 2010.) Form 8863
Making work pay tax credit (available for 2009 and 2010) This credit is the lesser of 6.2% of an individual's earned income or $400 ($800 in the case of a joint return). The credit is phased out at a rate of 2% of modified adjusted gross income (MAGI) above $75,000 ($150,000 in the case of a joint return); complete phaseout occurs at $95,000 ($190,000 for married individuals filing joint returns). Federal income tax withholding schedules were revised in 2009 to reflect this credit. TBA