As a taxpayer, you may be wondering about tax relief credit. This is important, especially for those who may end up owing taxes during the year.
Tax credits are incentives granted to some taxpayers. These credits are applied to the total amount that they owe in taxes to the state. When applied, they reduce what the taxpayer must pay in taxes, or they are paid back to the taxpayer in the form of a refund.
Tax relief credits can also be given when taxes have already been paid. In this case, the credit acts as a rebate.
Tax credits can make a big difference for taxpayers when it comes to paying their taxes. Here’s what you need to know about relief tax credits:
Refundable or Non-Refundable?
There is a difference between refundable and non-refundable tax credits. When a refundable tax credit is given to the taxpayer and it exceeds the amount that the taxpayer owes, the taxpayer is paid the difference. Therefore, if the taxpayer owes $500 in taxes but they are given a $900 tax credit, they will receive a $400 tax refund.
However, not all tax credits are refundable. With non-refundable tax credits, taxes are not returned to the taxpayer. In the above case, if the taxpayer was given the $900 tax credit but it was non-refundable, they would have $0 tax liability but would not be given the $400 difference.
Tax Credits for Payments
Taxes that are paid through income withholdings and other indirect ways are considered credits. In these situations, the tax credit is a refundable credit. Usual refundable payment methods are withholding through payroll, withholding payments to non-residents, and value-added tax which accrues through input credits.
Income Tax Credits for the Individual Taxpayer
There are multiple tax credits that can be given to an individual taxpayer. Many of these tax credits are given to all taxpayers while others are handed out to certain individuals based on their circumstances and qualifications. There are also one-time tax credits that are given out for only one year. Take a look at some of the most common individual tax credits:
Low-Income Tax Credits
There are a number of tax credits given to lower-income individuals. These credits help to reduce the amount of taxes owed by low-income taxpayers. Some are refundable and enable most of those with a low income to receive a tax refund, while other low-income credits are non-refundable.
Earned Income Tax Credit
The earned income tax credit (EIC) is a refundable credit. It is given on a percentage of the individual’s income and is calculated based on the number of qualifying children the taxpayer has. There is a maximum income for the EIC.
The elderly/retired tax credit is non-refundable. It is given to those who are retired or of a certain age. The maximum amount given in this credit is $1,125.
Retirement Savings Contribution Credit
This credit is non-refundable and can reach 50% for $2,000 of contributions to qualifying retirement plans. These plans include 401K, IRA, and the Thrift Savings Plan. There is a maximum allowable income to receive this credit.
Mortgage Interest Credit
Certain mortgage programs require mortgage interest that can be credited back up to $2,000. This credit is non-refundable.
Premium Tax Credit
The premium tax credit is a refundable credit given to taxpayers who get health insurance from a healthcare exchange. To qualify, an individual must have income below the federal poverty line between 100% and 400%.
Family Relief Tax Credits
Tax credits can be given out to taxpayers with children. These credits vary as some are given out for child-related expenses and some are handed out per qualifying child. Family relief tax credits are given out in addition to tax deductions for each dependent child.
Child Tax Credit
A credit of up to $1,000 is given for each child under the age of 17.
Child and Dependent Care Credit
A credit of up to $3,000 per child under the age of 13 is given for dependent care-related expenses. This credit is not given if one parent stays home full-time.
Adoption Expenses Credit
Up to $10,000 is given out for adoption-related expenses. This credit is phased out for higher incomes.
Education, Energy, and More
Certain areas are subsidized through tax credits, including education and energy. These are non-refundable credits for tuition and related expenses, first-time homebuyers, and energy efficiency expenses.
Business Tax Credits
On top of individual tax credits, there are also certain tax credits that can be claimed by businesses. These credits are often incentives for businesses, encouraging them to operate in a particular area or purchase the property. Business tax credits tend to be non-refundable credits.
Typically, business tax credits that are in excess of the current year’s taxes can be carried into the next year and used to offset the taxes that are due. Business tax credits can be given for:
- Alternative motor vehicles
- Alternative fuel
- Disaster relief
- Employing certain people or groups
- Industry-related factors
- Increasing research activities
- Certain activities or expenditures, such as investments, renewable energy, historic rehabilitation.
Find Eligible Tax Credits
When filing your taxes, you’ll want to make sure and get every tax credit that is available to you. These credits can have a huge impact on how much you owe in taxes and whether or not you get a tax refund.
The IRS Tax Relief Network will make sure you get every tax credit you’re eligible for. Their tax experts are skilled and knowledgeable in tax relief. They will help you file your taxes, claiming every deduction and credit that you are owed.