U.S. Individual Income Tax Part 5 Tax Credits
After you figure your tax, you may be eligible for certain credits that lower your tax liability. This article will give you a brief introduction to some basic tax credits.
Beginning with Tax Year 2018, you may be able to claim the Child Tax Credit if you have a qualifying child under the age of 17 and meet other qualifications. The maximum amount per qualifying child is $2,000. Up to $1,400 of the credit can be refundable for each qualifying child as the Additional Child Tax Credit. A refundable tax credit may give you a refund even if you don’t owe any tax.
Your qualifying child must have a Social Security Number issued by the Social Security Administration before the due date of your tax return (including extensions) to be claimed as a qualifying child for the Child Tax Credit or Additional Child Tax Credit.
Higher‐income taxpayers must reduce the allowable child credit by $50 for each $1,000 (or fraction thereof) by which modified adjusted gross income exceeds:
(1) $400,000 for a joint return;
(2) $200,000 for an unmarried individual; or
(3) $200,000 for married individuals filing a separate return.
Dependents who can’t be claimed for the Child Tax Credit may still qualify you for the Credit for Other Dependents. This is a non-refundable tax credit of up to $500 per qualifying person. The qualifying dependent must be a U.S. citizen, U.S. national, or U.S. resident alien. The non‐child dependent credit is subject to the same AGI phase‐outs and is not refundable.
The Earned Income Tax Credit, EITC or EIC, is a benefit for working people with low to moderate income. Those who qualify for EITC and claim the credits could pay less tax or even get a tax refund. The qualified amount is based on the earned income in tax year, filing status and number of qualifying children or dependents. People without qualifying children or dependents may also qualify for EITC. EITC is also a refundable tax credit.
A taxpayer may claim a credit for foreign income taxes paid to a foreign country or United States possession. There is a limitation on the amount of the credit an individual can obtain. Foreign tax credits are limited to the lesser of: Foreign taxes paid, or the U.S. tax liability on the foreign income. Any disallowed foreign tax credit may be carried forward 10 years. Please note the foreign tax credit is a non-refundable tax credit.
There are some other tax credits may be applied such as child and dependent care credit, elderly and permanently disabled credit or education credits. If you would like to learn more about tax credits, please consult with Kaizen professionals.