Tax credits are a dollar-by-dollar reduction in your tax bill. They are available against certain conditions that occur in your tax year and also require you to meet specific criteria to qualify for them. Some of these credits are refundable or rollover to the next year after you have reduced your tax bill to zero, while others can only be claimed within the qualifying year.
If you are interested in finding out more, here are 10 overlooked tax credits that could boost your 2025 refund or reduce your tax bill.
1. Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) was introduced in 1975 and still offers relief to people whose annual income is below a set income threshold. But to qualify, you must also meet other criteria. These intricacies make the EITC similar to finding ways to save money on your mortgage, but it is still an essential way to lower your tax bill.
2. Education Credit
The Education Credit is seen by some people as being hard to claim due to its criteria, but that doesn’t make it any less effective. Whether you file your return with a tax software or go at it manually, you can claim this credit if you, your spouse, or a dependent spends money on qualified education expenses at a qualified institution while meeting other relevant requirements.
3. Adoption Credit
You can claim the Adoption Credit if you adopt an eligible child and earn below a set income threshold along with meeting other criteria. The amount that you can claim through this credit changes year by year, but it remains quite significant for many people. This helps you spend money on taking care of your new baby with expenses like getting a baby monitor.
4. Child and Dependent Care Credit
The Child and Dependent Care Credit is often overlooked by people, but it remains powerful in helping parents and family members take care of their children and other qualifying dependents. This credit is available to those who pay a qualified individual to take care of the qualifying individual while they work or search for jobs. You may need to meet certain requirements to claim this credit.
5. Saver’s Credit
If you contribute to your individual retirement account (IRA), 401(k), or similar plans; file your own tax return; and are not a student, you can claim the Saver’s Credit. Depending upon your contributions, your tax credit can be quite sizable and help you slash your monthly expenses. This makes it important that you look into this credit.
6. Clean Vehicle Tax Credit
The clean vehicle tax credit allows you to reduce your tax bill against your spending on a new electric vehicle (EV). This means that as you download an EV charging location app and embrace the clean driving lifestyle, you can get rewarded for your commitment to the planet. But it’s important that you read the fineprint to properly claim the credit.
7. Energy Efficient Home Improvement Credit
The Energy Efficient Home Improvement Credit is available to those who make energy-efficient updates to their home that cover doors, windows, insulation, and skylights. This credit also extends to spending on HVAC systems and water heaters. In turn, you can complement purchases like a solar floor fan with eco-friendly structural upgrades to your home.
8. Residential Clean Energy Credit
This credit is a little different from the benefit mentioned above because it directly covers upgrades for environmentally friendly energy-producing systems like solar panels, wind generators, and geothermal power systems. If you often find yourself calculating energy for outdoor security lighting, you can make these upgrades to give yourself peace of mind and lower the taxes you owe.
9. Premium Tax Credit
The Premium Tax Credit is all about your insurance premiums and how you can claim those expenses to reduce your taxes. In order to qualify for this credit, you need to meet certain income thresholds according to your filing status. With that, you also have to steer clear of the status of married filing separately. Additionally, there are some other requirements that you need to meet.
10. Foreign Tax Credit
This credit helps you claim taxes that you paid in a foreign country against the same income that is being taxed in the United States. But the type of income that qualifies for this credit is quite specific and calls for a deeper understanding of tax regulations. For this purpose, you may speak to a professional tax accountant.
These tax credits can help you lower your tax liability and even lead to refunds year after year. This way, you can fulfill your tax obligations while also taking care of your finances.
