When filing your return, one of the most pleasant perks you might find is a tax credit.
A tax credit lowers your overall tax obligation as opposed to a deduction, which lowers the amount of income that will be subject to taxation.
As a result, hundreds of dollars may be subtracted from your bill or added to your refund. While some tax credits are general and apply to a large portion of the population, others are tailored to encourage a particular type of economic activity. Here are some tax credits you might wish to check before filing your return.
Earned Income Tax Credit
One of the most popular income tax deductions, the earned income tax credit (EITC), was created to lessen the financial burden on middle-class and low-income households.
Four out of five taxpayers filed tax returns for the 2021 tax year, with an average benefit of almost $2,000 claimed. According to the IRS, the value of these credits as a whole was around $64 billion.
The EITC’s eligibility requirements are mostly based on your income, as its name would imply, and you must have worked to be eligible for the credit. Depending on your filing status for the 2022 tax year, the income thresholds range from $16,480 to $59,187.
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Child Tax Credit
Although it has reverted to its prior levels, the child tax credit is not going away. Before the IRS will allow you to claim the tax credit, you and your children must fulfill a number of requirements, such as:
$400,000 for married couples and $200,000 for everyone else in terms of income (single taxpayers and heads of households). For every $1,000 of income beyond the cutoff, your credit amount is decreased by $50.
Each eligible kid must be a citizen or lawful permanent resident of the United States and possess a valid Social Security number.
As long as their children have valid Social Security numbers, families with children under the age of 17 are often eligible for the child tax credit. But, your income determines how much you can claim.
If your adjusted gross income reaches $200,000, or $400,000 for married couples filing jointly, the credit starts to phase down. The benefit completely expires at a certain income threshold.
American Opportunity Credit and Lifetime Learning Credit
Students enrolling in formal degree programs are the target audience for the American opportunity credit. On the other hand, lifetime learning credit can be used for several forms of training and education.
The American Opportunity Credit, which is partially refundable, is even more generous: Taxpayers may claim up to $2,500 for each eligible student, including for costs other than tuition, including course materials.
No matter how many kids would qualify, you can claim a total of $2,000 per tax return with the non-refundable lifetime learning credit for tuition only. Both credits cannot be claimed for the same student.
These two education credits have different requirements for eligibility. For instance, in order to qualify for the American Opportunity Credit, students must be enrolled at least half-time and have completed four years of post-secondary study. The lifelong learning credit is more inclusive and can be used for graduate-level coursework or occupational training.
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