One way of getting some tax back is by claiming your tax credits. Interestingly, quite a few people have not yet claimed one or more tax credits they qualify for. For example, An estimated 20% of eligible workers do not claim Earned Income Tax Credit(EITC). In 2021 153.7 million employments have been accounted for. 20% of that is about 30.6 million. This figure gives us a hint of how many people have lost someone due to unclaimed tax credits.
How does claiming tax credit affect your total tax refund? To start with, let us first clarify what a tax credit is. You qualify for a certain amount of money when you enroll in any of the tax credit plans. While making your tax return, you can then substrate the money you qualify for(credit). In other words, a tax credit is an amount of money that you as a taxpayer are allowed to subtract, dollar for dollar, from the income taxes that you owe. Tax credits also enable you to get a refund even if you don’t owe any tax.
The IRS, on its website, has identified the following credits.
- Advance Child Tax Credit Payments
- Child Tax Credit and Credit for Other Dependents
- Recovery Rebate Credit
- Saver’s Credit (Retirement Savings Contributions Credit)
- Credit for Prior Year Minimum Tax
- Plug-in Electric Drive Vehicle Credit at a Glance
Bet you haven’t seen some obvious ones. We took it Out! Check out the IRS website for a comprehensive list of ALL the credit you can get.
In the real world, one can not possibly qualify for all of them at a time. For this reason, we would be having a look at some of the more frequently used credits and the perks in each case.
Earned Income Tax Credit
Earned income tax help people with low to moderate-income earners get a little break from tax. To know more about the income amounts that qualify for this tax credit, please visit the earned income tax credit table.
Also, here is a list of requirements one should meet to be qualified for this tax credit.
Child and Dependent Care Credit
The Child and Dependent Care Credit were recently expanded by the American Rescue Act. This expansion led to an increase in credit received. The Child and Dependent Care Credit helps families provision for a child or dependent care expenses. Check your eligibility status here, and if you are eligible, make sure you claim it.
Saver’s Tax Credit
The saver’s tax credit or retirement savings contributions credit as formerly known. The credit cuts of tax for taxpayers who are saving up for retirement. Depending on the gross income you reported, you can get up to 50% of the following in Saver’s Tax Credits.
- Money contributed to one traditional or Roth IRA,
- Elective salary contributed to 401(k)s, 403(b)s, governmental 457(b)s, SARSEPs, or SIMPLE plans,
- The money contributed to qualified retirement plans like the 403(b), generally after paying tax.
- 501(c)(18)(D) plan contributions, or
- The money you had put into your ABLE account. Note that you must be a designated beneficiary to this account (beginning in 2018).