A refundable tax credit is a tax credit that directly reduces the taxes owed by the taxpayer.
There are three types of refundable tax credits:
– The Earned Income Tax Credit is a federal income tax credit for low-income working individuals and families.
– The Child Tax Credit is a U.S. federal government tax credit for parents, worth up to $1,000 per qualifying child under 17 years old.
– The American Opportunity Tax Credit is a federal income tax credit worth up to $2,500 per year for four years of postsecondary education in the United States in order to encourage people to enroll in higher education institutions and complete a degree program in order to enter the workforce quickly and efficiently.
Tax services near me want you to know about two main types of tax credits: refundable and nonrefundable.
Each of these gives you the chance to lower your taxes this year.
But keep in mind, tax credits are different from deductions.
A simple way to think about it is that a tax deduction reduces your taxable income, while a tax credit is a reduction in tax liability that’s applied after your taxes are tallied.
Here are some common refundable tax credits to be aware of:
- American opportunity tax credit — if you paid qualified higher education expenses
- Child tax credit — if you have a family with qualifying children under age 17
- Earned income tax credit — if you’re under a certain threshold of earned income
- Premium tax credit — if you’ve purchased qualifying health insurance
The above credits are just the basics. There are many more tax credits you could take advantage of this year.
I don’t want you to overpay the IRS, so if you’d like, I can give you a free tax assessment, and I could come up with a tax plan for you.