An income tax credit reduces the amount of tax you owe to the federal government, dollar for dollar

A tax credit is different from a tax deduction. A deduction lowers your taxable income — the amount the government uses to calculate your tax bill. A credit directly reduces the tax itself. If you owe $2,000 in federal income tax and you have a $500 credit, you now owe $1,500. If your credits are larger than your tax bill, some credits will refund the difference to you as money back.

The federal government offers dozens of income tax credits. Some are designed for families with children, some for people who save for retirement, some for students, some for people who buy energy-efficient home equipment. Each one has its own income limits, rules about what counts, and paperwork requirements. The IRS publishes the full list each year in Publication 17.

You claim credits on your federal tax return when you file. You do not receive them separately or in advance — they reduce what you owe when you calculate your total tax liability for the year.

Key Takeaways

  • A tax credit subtracts directly from your tax bill, while a deduction only lowers your taxable income, so a credit is worth more money to you.
  • Some credits are refundable, meaning if the credit is larger than your tax bill, the IRS sends you the extra money; others are non-refundable and can only reduce your bill to zero.
  • Each credit has its own income limits, so earning above a certain threshold may reduce or eliminate the credit you can claim.
  • You claim credits on your tax return by filling out a specific form or schedule for each credit you meet the requirements for.
  • The IRS website and Publication 17 list all available federal credits and the exact rules for each one.

Refundable vs. non-refundable credits

A refundable credit can give you money back even if you owe zero tax. The Earned Income Tax Credit (EITC) and the Additional Child Tax Credit are the two largest refundable credits. If your EITC is $3,200 and you owe $1,500 in tax, the credit first wipes out the $1,500 you owe, then the IRS sends you the remaining $1,700.

A non-refundable credit can only reduce your tax bill to zero — it cannot produce a refund. The Child and Dependent Care Credit and the Lifetime Learning Credit are non-refundable. If you owe $800 in tax and you have a $1,200 non-refundable credit, the credit eliminates the $800 you owe, but you do not receive the extra $400.

Some credits are partially refundable, meaning a portion of the credit can be refunded to you and a portion cannot. The Child Tax Credit, for example, is non-refundable up to your tax bill, but a portion of it (the Additional Child Tax Credit) is refundable up to a set amount per child.

Income limits and phase-outs

Most federal tax credits have income limits. If your income is above the limit, you cannot claim the credit at all. If your income falls within a phase-out range, the credit shrinks as your income rises. The exact limits change each year and depend on your filing status (single, married filing jointly, head of household, and so on).

For example, the Child Tax Credit begins to phase out at $400,000 of income for married couples filing jointly (in 2024), but at $200,000 for single filers. The credit reduces by $50 for every $1,000 (or fraction of $1,000) of income above the threshold. The IRS publishes updated income limits every January for that tax year.

You calculate your modified adjusted gross income (MAGI) to determine whether you fall within the limit. MAGI is usually your adjusted gross income with certain items added back in. The IRS instructions for each credit explain which version of income to use.

Common federal income tax credits

The Earned Income Tax Credit (EITC) is refundable and available to working people with low to moderate income. The amount depends on your income, filing status, and number of may have access to children. In 2024, the maximum credit ranges from $600 (no children) to $3,995 (three or more children).

The Child Tax Credit provides up to $2,000 per child under age 17. It is non-refundable, but the Additional Child Tax Credit (a refundable portion) can return up to $1,700 per child if you owe less tax than the credit amount. Income limits apply.

The Lifetime Learning Credit covers education expenses for yourself, your spouse, or your dependents. The maximum is $2,000 per tax return (not per student). It is non-refundable and phases out at higher incomes.

The American Opportunity Tax Credit is for students in their first four years of college. It covers tuition, fees, and course materials. The maximum is $2,500 per student per year, and up to $1,000 is refundable. Income limits apply.

The Saver's Credit (Retirement Savings Contributions Credit) rewards people with low to moderate income who save for retirement. The credit is 10%, 20%, or 50% of your contribution, depending on income. The maximum contribution that counts is $2,000, so the maximum credit is $1,000.

How to claim a tax credit on your return

You claim each credit by completing the form or schedule that corresponds to it. The Child Tax Credit uses Form 8812, the EITC uses Schedule EIC, the education credits use Form 8863, and so on. These forms ask you to provide the information the IRS needs to verify you meet the requirements — usually your income, the beneficiary's Social Security number, and documentation of the expense or status the credit covers.

If you file electronically, tax software will walk you through the questions and automatically fill in the correct forms. If you file by paper, you obtain the forms from the IRS website or by calling 1-800-TAX-FORM. You attach the completed forms to your tax return.

You do not have to claim every credit you are may have access to to, but it is almost always in your interest to do so. Claiming a credit reduces your tax bill or increases your refund with no downside.

What documents you need to support a credit claim

The documents depend on which credit you are claiming. For the Child Tax Credit, you need the child's Social Security number and proof of relationship (usually a birth certificate). For education credits, you need Form 1098-T (may have access to Tuition and Related Education Expenses Statement) from the school, or receipts showing what you paid. For the EITC, you need proof of earned income (a W-2 or self-employment records) and Social Security numbers for all may have access to children.

You do not send these documents with your return unless the IRS specifically asks for them. However, you must keep them for your records in case the IRS audits your return. The IRS can request documentation up to three years after you file (or longer if they suspect fraud).

If you claim a credit and later discover you did not meet the requirements, the IRS will disallow the credit and send you a bill for the tax you should have owed, plus interest. This is why it is important to understand the rules before you claim.

Frequently Asked Questions

Can I claim more than one tax credit in the same year?

Yes. You can claim multiple credits on the same return if you meet the requirements for each one. For example, you might claim both the Child Tax Credit and the Lifetime Learning Credit if you have a may have access to child and you or your spouse paid for college. The IRS will add up all your credits and subtract the total from your tax bill.

What happens if my tax credit is bigger than the tax I owe?

If the credit is refundable, the IRS sends you the difference as a refund. If the credit is non-refundable, you lose the extra amount — it does not carry forward to next year or produce a refund. This is why refundable credits are more valuable than non-refundable ones.

Do I have to file a tax return to claim a credit?

For most credits, yes. Even if you have no tax bill, you must file a return to claim a refundable credit like the EITC. If you do not file, you do not receive the credit. Some people are not required to file but choose to because a refundable credit will produce a refund larger than any tax they owe.

Can my income change after I claim a credit?

If your income changes during the year, you calculate your credit based on your final income for that tax year when you file your return. If you received an advance payment of a credit (like the Advanced Child Tax Credit payments in 2021), you reconcile the advance against the credit you actually earned when you file. If you received too much, you may owe it back; if you received too little, the IRS sends the difference.

Where do I find out which credits I might be may have access to to?

The IRS website has an interactive tool that asks you questions about your situation and tells you which credits you may be able to claim. Publication 17 (Your Federal Income Tax) lists all credits with the full rules. A tax preparer or the VITA program (free tax help for low-income people) can also review your situation and identify credits you may have access to for.