Tax credits are a valuable tool to trim your tax bill — here’s how they work

Core Insights - The article discusses various federal tax credits available to taxpayers, emphasizing the importance of understanding eligibility based on income levels and the nature of the credits [1][4]. Tax Credit Types - Partially Refundable Tax Credits: Only a portion of the credit is refundable; for instance, a $1,000 credit with $800 refundable results in an $800 refund if the tax bill is zero [2]. - Refundable Tax Credits: These credits can result in cash back; for example, a $1,200 credit against a $1,000 tax bill yields a $200 refund [2]. - Nonrefundable Tax Credits: These credits can reduce tax liability to zero but cannot result in a refund; for example, a $1,200 credit against a $1,000 tax bill would cap the benefit at $1,000 [3]. Child and Dependent Tax Credits - Child Tax Credit: Taxpayers with a modified adjusted gross income below $400,000 (married filing jointly) or $200,000 (other filers) may qualify for a credit of up to $2,200 for the 2025 tax year, with reductions for incomes above these thresholds [5][6]. - Child and Dependent Care Credit: This credit can be worth up to $1,050 for one child or dependent and up to $2,100 for two or more, based on a percentage of childcare expenses [9]. Earned Income Tax Credit (EITC) - The EITC targets low- to moderate-income workers, with maximum credits ranging from $649 for no qualifying children to $8,046 for three or more qualifying children for the 2025 tax year [11][12]. Educational Tax Credits - Lifetime Learning Credit: Worth up to $2,000 per tax return for qualified education expenses, this nonrefundable credit is available to taxpayers with modified adjusted gross incomes below $90,000 (single) or $180,000 (married filing jointly) [15][16]. - American Opportunity Tax Credit (AOTC): This partially refundable credit can provide up to $2,500 for educational expenses, with a maximum refund of $1,000, available to taxpayers with similar income thresholds as the Lifetime Learning Credit [17][18][19]. Tax Credits for Electric Vehicles and Renewable Energy - Electric Vehicle Tax Credit: Previously offered up to $7,500 for new electric vehicles, this credit is no longer available for purchases made after September 30, 2025 [20][21]. - Residential Clean Energy Tax Credit: Taxpayers can claim credits for sustainable home improvements made by December 31, 2025, including solar panels and other energy-efficient upgrades [22][23]. Saver's Credit - The Saver's Credit is available for individuals with modest incomes contributing to retirement savings plans, with credits ranging from 10% to 50% of contributions, capped at $1,000 for individuals and $2,000 for married couples [25][26].