It’s tax season, and that means gearing up to file your tax return! But it’s not all bad news. If you educate yourself about the 2020 tax credits available to you, you could save yourself a ton of money.
But what are tax credits? Tax credits are reductions to your taxable income, designed by the IRS to encourage behaviors that benefit the U.S. economy. Refundable tax credits take things a step further. Not only do they reduce the federal tax that you owe, but they can also get you a tax refund.
Here are five tax credits in 2020 that the IRS wants you to consider before filing your federal tax return:
1. The Earned Income Tax Credit
The Earned Income Tax Credit is a refundable tax credit for working, low-income people. If you are single, childless, and made $15,820 or less this year, you qualify for this tax credit. View the table below to learn the EITC income limits for singles, widowers, married couples filing jointly or for parents with children.
|Filing Status||Qualifying Children Claimed|
|Zero||One||Two||Three or more|
|Single, Head of Household or Widowed||$15,820||$41,756||$47,440||$50,594|
|Married Filing Jointly||$21,710||$47,646||$53,330||$56,844|
The maximum credit for 2020 returns is $6,660 for workers with three or more children. For workers without children, the maximum credit is $538. For more information, visit the IRS website.
2. The Child and Dependent Care Credit
The Child and Dependent Care Credit is for expenses you paid for the care of your qualifying children under age 13, a disabled spouse, or another qualifying dependent. Additionally, the hired care must enable you to work or look for work. The total expenses you claim for the credit cannot exceed $3,000 (for a single applicant) or $6,000 (for a married couple).
For more information, click here.
3. The Child Tax Credit
The Child Tax Credit may apply to you if you have a qualifying child under age 17. The credit may help reduce your federal income tax by up to $2,000 per qualifying child. To qualify, you must have earned at least $2,500, but less than $200,000 (for single applicants) or $400,000 (if married and filing jointly). This tax credit is also refundable for up to $1,400.
4. The Retirement Savings Contributions Credit
The Retirement Savings Contributions Credit, or the Saver’s Credit, helps low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or a retirement plan at work. Refer to the following table to find out what you qualify for:
|Credit Amount||Maximum Adjusted Gross Income|
|Married Filing Jointly||Head of Household||All Other Filers*|
|50% of your contribution||$39,000 or less||$29,250 or less||$19,500 or less|
|20% of your contribution||$39,001 – $42,500||$29,251 – $31,875||$19,501 – $21,250|
|10% of your contribution||$42,501 – $65,000||$31,876 – $48,750||$21,251 – $32,500|
|0% of your contribution||more than $65,000||more than $48,750||more than $32,500|
The tax credit applies in addition to any other tax savings that apply to retirement plans. For more information, see Publication 590, Individual Retirement Arrangements (IRAs).
5. The American Opportunity Tax Credit
The American Opportunity Tax Credit (AOTC) helps to offset some of the costs that you pay for higher education. The AOTC applies to the first four years of post-secondary education. The maximum credit is $2,500 per eligible student. Forty percent of the credit, up to $1,000, is refundable.
If you qualify for the AOTC, you must file Form 8863. For more information, see Publication 970, Tax Benefits for Education.
Ready to get started?
Are you ready to start filing your 2019 tax return? Sifting through all the potential 2020 tax credits, deductions, and forms can be exhausting. If you need help, check out these tax preparation firms — they can demystify the process and make tax season a snap.