6 Refundable Tax Credits You Can Claim In 2012
This time of year, as we prepare our tax returns, tax credits are like gold nuggets that translate to dollars.
For those who aren’t sure, a tax credit is a dollar-for-dollar reduction of taxes owed. Many of the best tax credits are refundable. If you are eligible for a refundable tax credit and you claim it, you can receive it as a tax refund even after your tax liability has been reduced to zero. It’s almost – but not quite – like paying less than your share of taxes. There are many different types of refundable tax credits that will increase your refund or decrease your tax bill on your 2012 federal income tax return. Here are 6 of the most common ones:
The Earned Income Tax Credit
This credit is for people who earn less than $49,078 from wages or self-employment, including farming. If your earnings dropped in 2012, you may qualify for this credit for the first time. The amount of your credit depends on different things, including income, age and the number of dependent children. The credit can be as large as $5,751. Workers without children also may qualify. (For more information about this credit, check out Guidelines On How To Qualify For The Earned Income Tax Credit.)
The Child And Dependent Care Credit
This one is for expenses paid for the care of your children under age 13 or for a disabled spouse or dependent while you work or look for work. You get a tax credit of as much as $3,000 for one dependent or $6,000 if you have two or more. If you are married, your spouse must have earned income or been enrolled as a full-time student for at least five months for your to qualify. ( For more information, see 4 Tax Credits For Parents With Children.)
The Child Tax Credit
This is for anyone with a dependent child. The most you can claim for this credit is $1,000 and you also can claim the Child and Dependent Care Credit. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
The Retirement Savings Contributions Credit
Also known as the Saver’s Credit, this credit is designed to help low to moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan such as a 401(k) plan. This credit gives you a tax credit of up to 50 percent of the value of contributions made to any retirement account. The amount of your credit is determined by the contributions you make. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).
You can claim a refundable tax credit for all expenses paid during the process of adopting a child. Qualified expenses include adoption fees, court costs and attorney fees, and even travel expenses and other expenses related to the adoption of a child. Adoption expenses can easily exceed $30,000, but the adoption credit is capped at $13,360. For more information, go to this IRS webpage.
The American Opportunity Credit
This credit, which replaced the Hope Scholarship credit in 2009, covers as much as $2,500 of undergraduate costs, but it is only available through 2012. This one equals 100 percent of the first $2,000 of a student’s qualified education expenses, plus 25 percent (or $500) of the next $2,000. Expenses covered by the credit include tuition and mandatory enrollment fees and the cost of books and course materials. Room and board do not count as qualified expenses nor do optional fees to cover things like student health insurance, athletics and other activities. You can claim it if you pay for education expenses for a dependent child, and you can claim as much as $7,500 if you have three children in college. But you cannot claim the credit if your child has four or more years worth of college credits as of the beginning of the year, and you cannot claim it if the student is not enrolled in a program that leads to an associates or bachelors degree or some other recognized credential. To qualify, students must attend an eligible institution, which includes almost all public colleges. Go to www.fafsa.gov to see if a school is eligible. For more information, see 4 Tax Breaks For College Education Expenses.)
Keep these tax credits in mind this tax season. They could significantly reduce your tax bill and might even end up netting you a nice tax refund from Uncle Sam.