Some tax credits are refundable; that is, the IRS will send the taxpayer a check for any amount in excess of the tax liability. Most credits are not refundable. Some credits may be carried to other tax years.
Here's a list of the more popular tax credits:
Child and Dependent Care Credit - If you paid someone to care for a child or a dependent so you could work or look for work, you may be able to reduce your tax by claiming the Child and Dependent Care Credit on your federal income tax return. You may also be able to claim the credit if you pay someone to care for your dependent who is under age 13 or for a spouse or a dependent of any age who is physically or mentally incapable of self-care.
The credit is a percentage of the amount of work-related child and dependent care expenses you paid to a care provider. The credit can be up to 35 percent of your qualifying expenses, depending upon your income.
For 2005, you may use up to $3,000 of the expenses paid in a year for one qualifying individual, or $6,000 for two or more qualifying individuals. These dollar limits must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from your income.
To claim the credit for child and dependent care expenses, you must meet the following conditions:
- Income You must have earned income from wages, salaries, tips or other taxable employee compensation, or net earnings from self-employment
- Payee The payments for care cannot be paid to someone you can claim as your dependent on your return or to your child who is under age 19
- Filing Status Your filing status must be single, head of household, qualifying widow(er) with a dependent child or married filing jointly
- Care The care must have been provided for one or more qualifying persons
- Home The qualifying person must live with you for more than half of 2005
There are some limitations on the amount of credit you can claim. If you received dependent care benefits from your employer, other rules apply.
For more information on the Child and Dependent Care Credit, see:
- Publication 503, Child and Dependent Care Expenses
- Form W-10, Dependent Care Provider’s Identification and Certification
- Form 2441 Instructions
- Publication 17, Your Federal Income Tax
You may download these free publications from www.IRS.gov or order them by calling 1-800-TAX-FORM (1-800-829-3676).
Education Credits - There are two education tax credits available, the Hope Credit and the Lifetime Learning Credit. The credits are based on education expenses paid for you, your spouse, or your dependents. During any particular year, you can claim only one of the credits for each student. For additional information on education credits, refer to IRS Publication 970, Tax Benefits for Education
Hope Credit - Covers first two years of college. Tax credit up to $1,500 per student for tuition and required enrollment fees. Income limitations for single taxpayers and married couples. Use IRS Form 8863
Lifetime Learning Credit - Up to $2000 per family for undergraduate and graduate study. Same income limitations as Hope Credit. To claim this credit, use IRS Form 8863.
Child Tax Credit - Up to $1,000 per child under age 17.
Foreign Tax Credit -File form 1116 if you paid income tax to a foreign country. Look on IRS Form 1099-DIV to see if some of your dividend income came from a foreign country and had foreign tax withheld.
Adoption Tax Credit - To take the credit or exclusion, complete Form 8839, Qualified Adoption Expenses. You will attach Form 8839 to Form 1040 or Form 1040A. Additional information on the adoption credit and exclusion can be found in Publication 968, Tax Benefits for Adoption. Employers should order Publication 968 to obtain information on setting up an adoption assistance program and information on how to report this benefit.
Excess Social Security withholding - If you had more than one employer and your total wages were over the social security wage base ($90,000 for 2005) limit for the year, too much social security tax may have been withheld. For details, including how to compute the amount of excess credit, refer to Publication 505, Tax Withholding and Estimated Tax.
Retirement Savings Contributions Credit -If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA), you may be able to take a tax credit.
The amount of the saver's credit you can get is based on the contributions you make and your credit rate. Refer to Chapter 4, Retirement Savings Contributions Credit, in Publication 590, Individual Retirement Arrangements (IRAs), for more information. Your credit rate can be as low as 10% or as high as 50%, depending on your adjusted gross income. The lower your income, the higher the credit rate; your credit rate also depends on your filing status. These two factors will determine the maximum credit you may be allowed to take.
Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine the rate and amount of the credit. Enter the amount of the credit on Form 1040, or on Form 1040A. You cannot use1040EZ to claim this credit.
|