Tax credits reduce your tax bill dollar-for-dollar, making them more valuable than deductions. Some of the most popular credits include the earned income tax credit, the child tax credit, the saver's credit, and two educational tax credits.
The earned income tax credit gives sizable reductions in taxes to workers with low- or mid-level incomes. The credit amount varies by family size and income, with maximums of $6,728 for those with three or more children (up $68 from 2020), $5,980 for those with two children (up $60), $3,618 for those with one child (up $34), or $543 for those with no children (up $5). The income limits below indicate which taxpayers are eligible for at least some of the earned income credit, but bear in mind that the top credit amount phases out gradually over a large portion of the income range. The income amounts are up slightly from last year.
|
Filing Status |
Income Limit if No Children |
Income Limit if 1 Child |
Income Limit if 2 Children |
Income Limit if 3+ Children |
|
Single, Head of Household, or Widowed |
$15,980 |
$42,158 |
$47,915 |
$51,464 |
|
Married Filing Jointly |
$21,920 |
$48,108 |
$53,865 |
$57,414 |
DATA SOURCE: IRS.
A special thing about the earned income tax credit is that even if you don't owe anything in taxes, you can still get the credit amount back from the IRS in the form of a refund. As you can imagine from the chart, a credit of several thousand dollars for workers earning less than $57,000 -- in some cases, much less -- can make a big financial difference for families struggling to make ends meet.
The saver's tax credit pays as much as $1,000 per person to encourage retirement contributions. It's designed for low- to middle-income taxpayers. Depending on your income, you can get a credit for 10%, 20%, or 50% of up to $2,000 in contributions to an IRA, 401(k), or similar retirement account. The following income limitations apply, and above the top amount, no credit is available. The income limits below are up slightly from year-ago levels.
|
Credit Percentage |
Single or Married Separate |
Head of Household |
Married Joint |
|
50% of contribution |
$0 to $19,750 |
$0 to $29,625 |
$0 to $39,500 |
|
20% of contribution |
$19,751 to $21,500 |
$29,626 to $32,250 |
$39,501 to $43,000 |
|
10% of contribution |
$21,501 to $33,000 |
$32,251 to $49,500 |
$43,001 to $66,000 |
DATA SOURCE: IRS.
Finally, among two educational tax credits, one is seeing minor changes. The Lifetime Learning tax credit offers additional educational tax breaks even beyond traditional college. A 20% credit on up to $10,000 in eligible expenses every year is available to taxpayers making less than $59,000 in 2021 if they're single or $119,000 if they're filing jointly, with reduced credits available up to $69,000 in income for singles and $139,000 for joint filers. This credit is available for graduate school, vocational training, and certain other nontraditional educational expenses. Those numbers are unchanged for singles but up $1,000 from 2020 levels for joint filers.