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Each year, millions of taxpayers in the United States have the opportunity to access several tax benefits that allow them to reduce the amount of taxes they must pay or increase their refund when they file their annual return.
The Internal Revenue Service (IRS) has a wide range of credits and deductions aimed at workers, families, students, retirees, and homeowners.
Both benefits aim to reduce the tax burden, but they have different functions and requirements.
IRS tax credits: what they are and which are the main benefits available
A tax credit directly reduces the amount of taxes a person must pay. Some are refundable.
Child Tax Credit
This benefit is aimed at families with dependent children who meet these requirements:
- The child must be under 17 years old at the end of the tax year.
- They must be claimed as a dependent.
- They must live with the taxpayer for more than half of the year.
- They must have a valid Social Security number.
- The taxpayer must meet the income limits set by the IRS.
The credit can be as much as USD 2,200 per child, and part of the benefit may be refundable through the Additional Child Tax Credit (ACTC).
Earned Income Tax Credit
This credit is aimed at low- and moderate-income workers and families. The amount varies depending on the number of children:
- No children: USD 649.
- With 1 child: USD 4,328.
- With 2 children: USD 7,152.
- With 3 or more children: USD 8,046.
To qualify, you must meet these requirements:
- Have earned income.
- Have a valid Social Security number.
- Meet the income limits established by the IRS.
- Not file certain foreign income forms.
Child and Dependent Care Credit
This credit allows you to recover part of the expenses for caring for children or dependents when these services are necessary so that the taxpayer can work or look for work. Eligible expenses include:
- Daycare centers
- Child care centers
The following may be considered:
- USD 3,000 in expenses for one dependent.
- USD 6,000 for two or more dependents.
To qualify for this credit, you must meet these requirements:
- The expense must have been necessary for work or job hunting.
- The dependent must be under 13 years old or a disabled person who depends on the taxpayer.
- The name and identification number of the service provider must be reported.
American Opportunity Tax Credit
This credit is aimed at college students and helps cover expenses related to higher education. It can be applied to tuition, academic materials, and other qualified education costs during the first years of a degree program.
Up to USD 2,500 per student are granted to those who meet these requirements:
- Be enrolled in a college degree or eligible program.
- Claim it during the first four years of higher education.
- Be enrolled at least half-time during an academic period.
Lifetime Learning Credit
It differs from the previous credit in that it is used for educational programs, professional training courses, and continuing education studies. There is no limit on the number of years it can be claimed, and up to USD 2,000 are granted to those who meet the requirements:
- Eligible higher education or job training expenses.
- There is no limit on the number of years it can be claimed.
- It can be used for professional development courses.
Premium Tax Credit (PTC)
This credit reduces the cost of health insurance purchased through the Affordable Care Act (ACA) Marketplace. To apply, the following requirements must be met:
- Household income must generally be between 100% and 400% of the federal poverty level
- Having purchased health coverage through the Marketplace.
Other tax credits offered by the IRS
There are more tax credits that can be found on the IRS official website.
IRS tax deductions: which expenses allow you to reduce taxes
Tax deductions reduce the amount of income on which taxes are calculated. Therefore, they indirectly reduce the taxpayer’s tax burden.
Standard deduction: who can claim it
The standard deduction is the option most commonly used by the majority of taxpayers. Its amount is updated based on inflation and varies according to each taxpayer’s filing status:
- USD 16,100 for single taxpayers.
- USD 32,200 for married couples filing jointly.
- USD 24,150 for heads of household.
Any taxpayer who files a return and does not choose to itemize deductions can claim it.
Student loan interest deduction
Taxpayers who have paid interest on eligible education loans may deduct part of those expenses. This benefit eases the financial burden of those financing higher education.
The amount can be as much as USD 2,500, and it has income limits:
- The phaseout begins at USD 85,000 for single taxpayers.
- USD 170,000 for married couples filing jointly.
Deduction for retirement account contributions
This deduction is for those who have made contributions to certain retirement plans. It encourages retirement savings and provides a benefit now and in the future.
The maximum deductible amounts are:
- USD 7,000 for those under 50.
- USD 8,000 for people 50 years old or older.
Those who meet these requirements may qualify:
- Have income earned through work.
- Meet the income limits established by the IRS when applicable.
Mortgage interest deduction
Homeowners who itemize their deductions may claim part of the interest paid on an eligible mortgage. It is one of the best-known deductions in the U.S. tax system.
The amounts cover interest paid on up to USD 750,000 of eligible mortgage debt.
Anyone who meets these requirements may claim it:
- The home must be the main residence or a qualifying second home.
- The taxpayer must itemize deductions.
Additional deduction for those over 65
Recent tax changes have added additional benefits for certain taxpayers over 65 years old. These incentives aim to reduce the tax burden on older adults and complement other available benefits.
Up to USD 6,000 per taxpayer may be deducted and the benefit is available through 2028. Those who meet these requirements may qualify:
- Be at least 65 years old.
- Meet the income limits established by law.
Tip deduction
Some workers who receive tips as part of their income may qualify for new deductions introduced by recent tax legislation.
The maximum deductible amount is USD 25,000 and it is available through 2028 for those who meet these requirements:
- Tips must be properly reported to the IRS.
- They must come from eligible occupations.
Overtime deduction
The new tax provisions also include benefits related to certain income earned from overtime work.
The amounts are:
- Up to USD 12,500 for individual taxpayers.
- Up to USD 25,000 for married couples filing jointly.
Deduction for vehicle loan interest
Certain taxpayers may deduct part of the interest paid on loans used to buy vehicles that meet the requirements established by the regulations.
Up to USD 10,000 per year may be deducted for those who meet these requirements:
- The vehicle must meet the criteria established by federal law.
- The loan must be eligible under IRS rules.
Other deductions available to taxpayers
In addition to the most popular deductions, the IRS includes other tax benefits for specific situations that can be reviewed on its official website.
How to claim tax credits and deductions with the IRS
To access tax credits and deductions, taxpayers must file a federal tax return and meet the specific requirements of each benefit. Eligibility usually depends on factors such as income, filing status, the number of dependents, and certain expenses incurred during the tax year.
The IRS recommends keeping all supporting documentation, including W-2 and 1099 forms, proof of educational expenses, daycare records, medical receipts, mortgage documentation, and donation receipts. These documents may be requested to verify that the benefit was claimed correctly.
Most credits and deductions are claimed using Form 1040, although some benefits require additional forms. Before filing, the IRS advises using its eligibility tools to confirm which tax benefits apply to each taxpayer and avoid errors that could delay the refund or lead to later adjustments.