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“I'm proud to pay taxes in the United States ; the only thing is, I could be just as proud for half the money.” – Arthur Godfrey
 Unfortunately, many taxpayers pay too much income tax because they do not take
advantage of all the tax credits for which they might be eligible. A 2003 study by the
U.S. General Accounting Office showed that about 2 million taxpayers overpaid their
1998 taxes by $945 million because they failed to itemize deductions.
There are a number of credits available that can be found by visiting the IRS’s
website at www.irs.gov or calling the IRS Tax Help Line at 800-829-1040. Several
credits are discussed below.
Earned Income Tax Credit
The earned income tax credit is a federal income tax credit for low-income working
individuals and families. It was initially approved by Congress in 1975, in part to offset
Social Security tax burdens and to provide an incentive to work. It entitles those who
work for lower wages to receive a larger tax cut. Eligibility for the EITC and the amount
received is based on the amount of earned income, marital status, and number of
qualifying children. A single person with no children can receive up to $428. A person
with one child can receive up to $2,853 and, with two or more children, up to $4,716.
For more information, see IRS Publication 596 (Earned Income Credit) or see "EITC" on this Web site.
Child Tax Credit
This credit is for people who have a qualifying child or children below the age of 16.
e maximum amount of the credit is $1,000 for each qualifying child. For more
information, see IRS Publication 972 (Child Tax Credit).
Child and Dependent Care Credit
This credit is for expenses paid for care that enables the taxpayer to work, including
care of qualifying children or of a disabled spouse or dependent. The amount of
qualifying expenses is limited, and the credit is for a percentage of the qualifying
expenses (up to $3,000 for one person cared for and $5,000 for two or more). For more
information, see IRS Publication 503 (Child and Dependent Care Expenses).
Adoption Credit
Adoptive parents can take a tax credit of up to $10,390 for qualifying expenses paid
to adopt an eligible child. Also, a credit of up to $10,390 may be allowed for the
adoption of a child with special needs, even if you do not have any qualifying expenses.
For more information, see IRS Publication 968 (Tax Benefits for Adoption).
Credit for the Elderly and Disabled
This credit is available to individuals who are either
age 65 or older or are on disability. There are income
limitations. For more information, see IRS Publication
524 (Credit for the Elderly or the Disabled).
 Education Credits
Two credits are available for people who pay the
costs of higher education.
- The Hope Credit is for payment of the first two years of tuition and related
expenses for an eligible student for whom the taxpayer claims an exemption (up
to $1,650 per student).
- The Lifetime Learning Credit is available for all post-secondary education for an
unlimited number of years (up to $2,000 per return). A taxpayer cannot claim
both credits for the same student in one year.
For more information, see IRS Publication 970 (Tax Benefits for Education).
Health Coverage Tax Credits
The Health Coverage Tax Credit (HCTC) is a federal tax credit that can pay for 65%
of health insurance premiums for you and your family. If you are an eligible individual,
the HCTC is available to you either monthly as your premiums become due or yearly
when you file your federal tax return. You must meet certain requirements, such as
being enrolled in a qualified health plan. To find out if you are eligible for the HCTC and
learn how to receive it, visit the IRS website: www.irs.gov.
Retirement Savings Contribution Credit
Eligible individuals may be able to claim a credit for a percentage of their qualified
retirement savings contributions, such as contributions to a traditional or Roth IRA or
salary reduction contributions to a SEP or SIMPLE plan. To be eligible, you must be at
least age 18 at the end of the year and not a student or an individual for whom someone
else claims a personal exemption. Also, your adjusted gross income (AGI) must be
below a certain amount. For more information, see chapter four of IRS Publication 590
(Individual Retirement Arrangements). |
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