Claiming Federal Income Tax Credits

Tax season is fast approaching and it is time to analyze all financial records. To receive the maximum possible refund amount on your federal income taxes, you should make sure you are claiming all available tax credits. If your credits equal more than the standard deduction amount, you should itemize your taxes using form 1040. Check with a qualified tax advisor to see which credits you are qualified to claim.

Earned Income Credit

Low-income tax payers may qualify for earned income tax credit, also called EITC. You may even qualify for this credit if no income tax was withheld from your paycheck. The amount you qualify for under this credit will depend upon your filing status, number of dependents, your income and wages from last year's tax return. All individuals claiming EITC must be a U.S. citizen or resident alien with a valid social security number. You also cannot be claimed as a dependent on someone else's taxes.

Child and Dependent Care Tax Credit

You may claim the child and dependent care credit if you paid someone to care for your children or other qualified dependent so you could work or look for a job. Married couples filing for this credit must both be employed. An exception is for a spouse who is a full-time student or physically or mentally handicapped. Children or dependents claimed under this credit must be under the age of 13. Even if the dependent only lived with you for part of the year, you may still be able to claim expenses for the portion of the taxable year in which they lived with you. Form 2441 must be filed along with Form 1040 or Form 1040A to claim child and dependent care tax credit.

Retirement Savings Contribution Credit

If you have contributed to a retirement plan sponsored by your employer or to an individual retirement plan, these contributions may be eligible for a tax credit. The rules for retirement savings contribution credits can be found in IRS publication 590 . Credit rates can vary from 10 to 50%, depending upon adjusted gross income. Individuals with lower income earn a higher credit rate.

First-time Homebuyer Credit

Qualified first-time homebuyers may claim a refundable tax credit for up to 10% of the home's purchase price or up to $8,000. There are some income limits to claiming this credit. Maximum allowable income is $125,000 for single tax filers and $225,000 for married taxpayers. The credit excludes homes exceeding $800,000 in purchase price. For more specific information, see First-Time Homebuyer Credit: Answers .

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Tax Topics - Topic 600 Tax Credits