It’s rather important to find out which tax credits are applicable to you when it’s time for you to file taxes. There are quite a few tax credits that are there to help the taxpayer, mainly the middle class and the impoverished ones.
Knowing about your tax credit can give you a psychological boost when you file for income tax return as their existence is to help you save on your earnings. There are many who are unclear and obscure about their benefits and are unable to take proper advantage of these.
Let us now discuss the 5 different tax credits you may qualify for:
- Earned Income Tax Credit: This was introduced in the year of 1975 to reduce the burden of Social Security taxes and it’s determined by income amount. People who are single or married can claim the same with the amount of credit based on gross income and investment income. The age limit must be between 25 and 65 years of age and the concerned must have authentic social security numbers and spouses and lived in the country for more than six months. According to Louis Barajas, ‘married filing separately’ do not qualify for EITC. This particular tax credit was formulated to help the blue collar workers. Therefore, since 2015, if your income is $3400 or more, you aren’t eligible for it.
- American Opportunity Tax Credit: The Hope Credit, now known as the American Opportunity Tax Credit, has helped pay for higher studies for a long time. The Hope Credit, paid for two years of undergraduate tuition while the AOTC, slated for expiration post-December 2017 takes care of four years of college education. The modified adjusted gross income needs to be $80,000 or less and in the case of married couples filing jointly, it needs to be $160,000 or less to be eligible for the credit. Up to $2500 may be earned for the cost of tuition and course materials during the taxable year. Also, the student needs to be enrolled at least half the time of the academic year.
- Lifetime Learning Credit: Established along the lines of offsetting college expenses, it differs from the AOTC because as opposed to the latter, LLC covers any amount of post-secondary education and not just four years and for those who aren’t going for a degree. The LLC promises a maximum credit of $2000/student and at the moment, the full credit is available for someone who makes $55,000 or less.
- Child and Dependent Care Credit: This credit is available for people who need to pay for daycare or babysitting while looking for jobs with the child being under 13 years of age. It also extends to the expenses involved in caring for a dependent person who is physically or mentally incapable of taking care of himself/herself. The credit provides up to 35 percent of all such expenses, based on adjustable gross income.
- Savers Tax Credit: Previously known as the Retirement Savings Contributions Credit, the STC is there for contributions to retirement plans. The lesser the income, the greater the credit is. This is how this tax credit works which is up to $1000 for single filing and $2000 for joint filing. As of 2015, the maximum credit for single filers $30500, $45,750 for household heads and $61000 for joint filers who are married. The minimum mandatory age is 18.
Tax credits make life easier for low-income people who can’t afford a large chunk of their money taken away as taxes. From covering educational expenses for college goers to contributions toward retirement plans, the tax credits are an asset for blue collar workers and families. After all, equal opportunity is a necessity in a functioning society and to get to study beyond high school or lead a comfortable life after retirement are things that everybody desires.