What exactly is a tax credit? It’s a provision that reduces the amount a person owes in income taxes dollar for dollar. Some tax credits are even refundable, meaning that even if a person’s tax bill is less than the amount of a refundable credit, they can get the difference back in their refund. Recent legislative changes have enhanced some of these credits.
Here, from the IRS, is a quick overview of some of the more common credits.
Tax credits:
- The child tax credit helps families with qualifying children. For 2025, the amount is up to $2,200 per qualifying child.
- The child and dependent care credit can reduce federal income tax with a credit for child and/or dependent care expenses incurred while the taxpayer worked or was looking for work.
- A saver’s credit may be available if a taxpayer made eligible contributions to their IRA or an employer-sponsored retirement plan. The maximum credit is $1,000, or $2,000 if married and filing jointly.
Refundable tax credits:
- An earned income tax credit helps low-to-moderate-income workers and families get a tax break. The amount of the credit may vary based on income, family size and filing status.
- The premium tax credit is available to taxpayers who buy their health insurance through the Affordable Care Act health insurance marketplace and meet other criteria. It’s a refundable credit based on the taxpayer’s income and the cost of their health care plan.
- A fuel tax credit may be claimed if fuel was purchased for use for off-highway business and farming purposes.
Partially refundable tax credits:
- An additional child tax credit is a refundable portion of the CTC. For 2025, up to $1,700 per qualifying child may be refundable.
- An adoption tax credit is available to taxpayers who finalized an adoption in 2025 or started the adoption process before 2025. The maximum amount for 2025 is $17,280 per eligible child. The refundable amount is up to $5,000 per qualifying child. However, any nonrefundable amount carried forward can’t be used to calculate a refundable portion for future tax years.
- The American opportunity tax credit helps offset qualifying education expenses for an eligible college student. The amount is up to $2,500 per year, and up to $1,000 is refundable.
It’s important for people to keep records to show their eligibility for the tax credits they claim. Unfortunately, scam promoters can share misleading information about credits while trying to promote large refunds. That’s why it’s so important to work with legitimate, qualified tax professionals.
Original content by the PSK LLP. This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.
