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Many Americans unknowingly miss out on thousands of dollars each year by failing to claim tax credits they qualify for. Tax credits like the Earned Income Tax Credit (EITC), Saver’s Credit, Lifetime Learning Credit, and American Opportunity Credit can significantly reduce your tax bill or increase your refund. These credits are often underutilized, costing taxpayers billions of dollars annually.
If you’re feeling uncertain about whether you qualify for these valuable tax credits, don’t worry. This article will guide you through the requirements for each and offer helpful advice on how to ensure you’re claiming what you deserve.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) is a tax break intended for low to medium income tax payers and is one of the most impactful tax credits for individuals and families, yet 1 in 5 eligible taxpayers fail to claim it. The EITC helps reduce tax liability and can even result in a tax refund.
Who qualifies?
To qualify for the EITC, you must have earned income from wages or self-employment. The income thresholds vary based on filing status and the number of children in your household. You must meet certain residency and citizenship requirements as well.
How much can you receive?
The average EITC refund is around $2,500, but families with more children could receive even more. Approximately $7.3 billion is left unclaimed each year, making it critical to check your eligibility if you fall into this income bracket.
Saver’s Credit
The Saver’s Credit is another underutilized tax credit designed to encourage retirement savings for low- to moderate-income taxpayers. Despite the financial benefits, only about 10% of eligible taxpayers claim the Saver’s Credit.
Who qualifies?
If you are 18 or older, not a full-time student, and not claimed as a dependent, you may be eligible. To qualify, your adjusted gross income (AGI) must be less than $36,500 for single filers and $73,000 for joint filers. Contributions to a 401(k), IRA, or other retirement accounts make you eligible for this credit.
How much can you receive?
Depending on your income, the credit can be up to 50% of your contributions to qualifying retirement accounts. It’s an excellent incentive to save for retirement while lowering your tax burden.
Lifetime Learning Credit
The Lifetime Learning Credit provides valuable tax savings for those paying for higher education or job-related courses. It can be claimed for tuition, books, and other qualified education expenses.
Who qualifies?
There are no limits on how many years you can claim the Lifetime Learning Credit, making it a great option for non-traditional students. To qualify, your AGI must be under $80,000 for single filers or $160,000 for joint filers.
How much can you receive?
The credit provides 20% of the first $10,000 in qualified education expenses, up to a maximum of $2,000 per return. Many students and professionals miss out on this credit, leaving hundreds of millions of dollars unclaimed each year.
American Opportunity Credit
The American Opportunity Credit is a tax credit aimed at helping cover education expenses for the first four years of post-secondary education. It’s available for students enrolled in undergraduate programs.
Who qualifies?
To claim this credit, your AGI must be under $90,000 for single filers or $180,000 for joint filers. The credit can be claimed for up to four years of undergraduate education.
How much can you receive?
The maximum credit is $2,500 per student. Many eligible students and their parents fail to claim this credit, resulting in significant unclaimed benefits.
Why Are These Tax Credits Underutilized?
There are several reasons these credits often go unclaimed:
- Lack of Awareness: Many individuals simply don’t know they are eligible for these credits.
- Complexity: Navigating tax forms and credit qualifications can be confusing, causing taxpayers to overlook key credits.
- Over-reliance on Standard Deductions: Some assume they’re better off taking the standard deduction and don’t explore additional credits.
How to Ensure You’re Not Missing Out
Here are a few steps you can take to ensure you’re not missing out on valuable tax credits:
- Use Tax Software: Tax software often automatically checks your eligibility for tax credits based on the information you provide.
- Consult a Tax Professional: If your tax situation is complex or you’re unsure if you qualify for certain credits, it may be worthwhile to consult a tax advisor.
- Do Your Research: The IRS website provides detailed information on each credit. Make sure you understand the eligibility requirements and apply for the credits you’re entitled to.
Don’t Leave Money on the Table
Tax credits like the EITC, Saver’s Credit, Lifetime Learning Credit, and American Opportunity Credit offer significant financial benefits. However, millions of dollars are left unclaimed each year due to lack of awareness and the complexity of the tax system. By ensuring you’re taking advantage of all the tax credits you qualify for, you can reduce your tax burden and increase your refund.
If you’re uncertain about your eligibility, don’t hesitate to seek help from a tax professional or use tax software that can guide you through the process. Your wallet will thank you!
