In our previous installment we talked about the difference between tax deductions and tax credits. You can check that out here {Blog Post Link}. In short summary, tax credits reduce your tax liability dollar for dollar where deductions reduce the income your tax is calculated on. The world of tax credits is vast and varied. In this particular post we will hit on some of the most popular/claimed credits, how much they can make a difference, and some of the qualifications to claim them. This will be a primer and is certainly not an exhaustive list. Even I don’t want to sit and read an exhaustive list of tax credits. I might do it, but it isn’t the most interesting reading in the world.
To kick things off, we will start with maybe one of the most mis-claimed or misunderstood credits – the Earned Income Credit (EITC). The EITC is a tax credit intended to provide benefit to lower income tax payers and can actually be refundable. What does “refundable” mean? It means that even is your don’t actually owe tax or have withholding, you can still get a tax refund of this credit. {Sweet} The credit is based on a percentage of your earnings and factors in other financial information, like your filing status, how many dependents you have, what kinds of income that you have, and some other specific tax items. If you make over $68,075 and file a joint return or $61,555 filing as single/head of household, you won’t be eligible for this one. For 2025, the maximum credit is about $8,000 and is also fully refundable. To claim the credit, you can file a Schedule EIC along with your annual Form 1040 – you know, your annual tax form.
Another popular credit is the Child Tax Credit (CTC). The CTC is easy to identify. It is a flat per dollar amount per child that you have under the age of 17.
In July of 2025, President Trump’s One Big Beautiful Bill (OBBB) – could we have any more abbreviations? – increased the 2025 credit amount to $2,200 per eligible child, indexed the credit to increase with inflation, and added some requirements about the parent and child having valid social security numbers. You must have earned income to claim the credit and if you make over $200,000 as a single filer or $400K for jointly filers, you aren’t able to claim the credit.
Next up on the list of credits you never knew you wanted to know about are Educational Tax Credits. There are 2 different credits designed to support taxpayers with post-secondary education costs – the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Both credits are designed to help with higher education costs. The AOTC is the more generous credit of the 2, designed to help only with the first 4 years of college tuition. You must be at least a half-time student and the student can be you, a spouse or a dependent. The maximum credit amount is $2,500, with 100% of the first $2000 being eligible for the credit and 25% of the next $2,000. Up to 40% of the credit can also be refundable. For the LLC, the qualifications are lower. The eligible student is required to only be enrolled in one course during the calendar year. The LLC is available for all years of post-secondary education, including masters and beyond courses, for an unlimited number of years. The maximum credit annually is $2,000 but is calculated at 20% of your tuition costs up to $10,000. It is not refundable. As with most credits, if you make over $90K as a single filer or $180K married filing jointly, you can’t claim the credits.
The last group of credits we will discuss are energy credits that help the environment. You can claim small credits related to energy efficient improvements to your main home as long as that home is in the US. The credits are based on how much you spend and are generally capped at $200-$500 but various items can qualify like new windows, insulation, interior and exterior doors, HVAC systems, or hot water heaters. If you decide to install larger energy items, like solar panels or a geothermal heating system, you can actually claim a tax credit up to 30% of the cost of the improvement. You want to be sure you check and make sure whatever you are doing meets the requirements, but don’t miss out since they can make a difference.
This list is by no means exhaustive and primarily touches on a few common credits available to individuals. Business owners have access to a host of other credits like the Research & Development Tax Credit, various employer/employee related credits, retirement plan credits and many others.
You may be thinking, “Great – now what do I do?” How do I get these credits? Are they on a card or something? To claim these credits, you file and report the required info on various forms as a part of your annual Form 1040 tax return. Each credit type will have a corresponding form or Schedule and outline what information you need to include in order to properly claim and support the credit. Be sure that you maintain any documentation necessary to support your credit claim in the event the IRS asks for it, particularly if regarding the EV vehicle credit. This isn’t one we talked much about due to changing laws, but as with all credit, be sure you can back up the claim.
A few things to keep in mind, if you think you may be eligible to claim any tax credit, be sure that you either consult a qualified professional or thoroughly review the instructions to be sure you meet requirements of the credit. You don’t want to be claiming credits that you don’t actually qualify for. If the IRS catches it, your credit claim could get denied and you might end up owing penalties too. Nobody wants that. This wraps up our discussion on credits. Be sure when filing your return that you are maximizing everything available to you. Don’t let the G’men be keeping your money.