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There are a number of tax credits that are available to individual taxpayers and small businesses. Unlike tax deductions which reduce your taxable income, tax credits reduce the actual tax dollar for dollar. This section includes the more commonly available tax credits.
- Home Energy Credits
- Tax Credit for Residential Energy Improvements - A reduced credit for home energy-savings improvements is available for 2011. The credit generally equals 10% of a homeowner’s cost of eligible energy-saving improvements, up to a maximum lifetime tax credit of $500. The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not count.
- Making Work Pay Credit
- “Making Work Pay” credit provides a refundable credit of 6.2% of a taxpayer’s earned income not to exceed $400 for individuals and $800 for joint filing couples and applies only to 2009 and 2010.
- The Earned Income Credit
- The EITC is for people who work, but have lower incomes. If you qualify, it could be worth up to over $5,700 for 2011. So, you could pay less federal tax or even get a refund. The credit is a refundable credit, so you can receive the benefits of the credit even if you may not owe any taxes. That’s money you can use to make a difference in your life.
- Child Tax Credit
- Taxpayers who have a qualified child may qualify for the Child Tax Credit. The maximum credit amount is $1,000 through 2012 and then will drop to $500 beginning in 2013 unless Congress takes further action.
- Child & Dependent Care Credit
- A nonrefundable tax credit is available to some taxpayers for the expenses incurred for the care of a child (generally under 13 years of age), disabled child, spouse, or other dependent while the taxpayer is gainfully employed, (or is job seeking). In addition, employer dependent care assistance programs allow employees to exclude from income certain payments expended for child and dependent care.
- Adoption Credit
- Adoptive parents may be able to claim a dollar-for-dollar tax credit for the “qualified” expenses of adopting a child up to $13,360 for 2011 (up from $13,170 in 2010) for each adopted child. That is equivalent to a deduction of over $53,400 for a taxpayer in the 25% tax bracket. For 2010 and 2011, the credit is refundable and any excess credit not used to reduce the tax is refundable. Prior to 2010, the credit was nonrefundable and could not exceed the sum of a taxpayer’s regular and alternative minimum taxes. However, any unused credit can be carried forward up to 5 years. Any carryover remaining from prior years will be fully refundable in 2010.
- Work Opportunity Tax Credit
- Employers can qualify for a tax credit for qualified wages paid to members of targeted groups. The credit, except for long-term family assistance recipients and summer youth employees, equals 40% (25% for employment of 400 hours or less) of qualified first-year wages ($6,000 cap) for a maximum credit of $2,400 for each eligible employee.
- AMT Credit
- The Alternative Minimum Tax Credit is a frequently misunderstood and overlooked tax credit. Oversimplified, the alternative minimum tax credit is the result of incurring an alternative minimum tax (AMT) in a prior year, which generates a credit that can be used to offset the excess of the taxpayer’s regular tax over the alternative minimum tax in a subsequent year, with unused credit carried forward to future years.
- Saver's Credit
- The Saver's Credit provides a nonrefundable tax credit for retirement plan contributions made by eligible, low income taxpayers to IRAs and qualified elective income deferral arrangements. The credit provides incentives for lower income individuals to save for their retirement through available qualified plans. To qualify, the taxpayer must have reached the age of 18 by the close of the year and cannot be a full-time student or dependent of another.
- First-Time Homebuyer’s Credit Recapture
- To stimulate home sales, Congress established the first-time homebuyer credit in 2008, modified it for 2009 (through November 30, 2009), and then extended it again through the middle of 2010 (2011 for certain service members), resulting in some complicated recapture rules.