What Are Tax Credits for Individuals and Why Do They Matter?
Everything You Need to Know to Maximize Your Refund and Reduce Your Tax Liability
When it comes to reducing your tax bill, tax credits are one of the most powerful tools available. Unlike deductions—which reduce the amount of income you’re taxed on—tax credits directly reduce the amount of tax you owe, dollar for dollar.
That means a $1,000 credit lowers your tax bill by $1,000, regardless of your income level.
Tax credits can make a significant difference during tax season, especially for individuals and families with children, those incurring education expenses, those with lower incomes, or those making energy-efficient home improvements. Some credits are even refundable, meaning you could receive a refund even if you owe no tax at all.
In this guide, we’ll break down:
- The different types of tax credits for individuals are available
- Who qualifies and how to claim them
- Refundable vs. nonrefundable credits
- Strategies to maximize your credits and boost your refund
Let’s begin with the tax credits that benefit the widest group of people: family and dependent-related credits.
Need help maximizing your tax credits for individuals? Check out Digital Tax Group’s services or contact us to schedule your consultation today!
Section 1: Family & Dependent Tax Credits for Individuals
Whether you’re a parent, guardian, or someone caring for a dependent, there are several valuable tax credits designed to ease the financial burden of raising a family.
Child Tax Credit (CTC)
The Child Tax Credit is one of the most widely used tax credits for families with dependent children.
Who Qualifies:
- You have a dependent child under the age of 17at the end of the tax year
- The child lived with you for more than half the year
- The child has a valid Social Security number
- Your income is below the phaseout thresholds
2025 Benefit:
- Up to $2,000 per qualifying child
- Up to $1,500 of this may be refundable (through the Additional Child Tax Credit)
- Begins to phase out at:
- $200,000 (single filers)
- $400,000 (married filing jointly)
Tip: Even if you owe no tax, you may still receive a portion of the credit as a refund.
Credit for Other Dependents (ODC)
If you support a dependent who is not a qualifying child under 17—such as an older child, elderly parent, or disabled relative—you may qualify for this credit.
Who Qualifies:
- The dependent does not meet the CTC requirements, but:
- Is a qualifying relative(defined by IRS guidelines)
- Has a valid TIN (but not necessarily a Social Security number)
- You provide more than 50% of their support
2025 Benefit:
- Up to $500 per dependent
- Nonrefundable(it can reduce your tax to zero, but not result in a refund)
Child and Dependent Care Credit
If you paid for childcare or dependent care so you could work (or look for work), this credit can help offset those costs.
Who Qualifies:
- You paid for care for a child under 13, a spouse, or another dependent incapable of self-care
- You (and your spouse, if married) earned income
- The care provider is not your spouse, your child under age 19, or the dependent’s parent
2025 Benefit:
- Up to 35% of qualifying care expenses:
- Up to $3,000 in expenses for one dependent
- Up to $6,000 for two or more dependents
- The credit phases down to 20%for higher-income earners
Pro Tip: Keep documentation and receipts for daycare, after-school programs, and even summer camps.
Adoption Credit
If you adopted a child, you may be able to claim a credit for the qualified adoption expenses you incurred.
Who Qualifies:
- You paid out-of-pocket for legal adoption fees, court costs, home studies, and related travel
- The adoption is of an eligible child(under age 18 or physically/mentally incapable of self-care)
- The child is not your spouse’s biological child (for step-parent adoptions, the credit does not apply)
2025 Benefit:
- Up to $15,950per child (adjusted annually for inflation)
- Nonrefundable, but you can carry it forward for up to 5 years
Special rules apply for adopting children with special needs, where you may claim the full credit regardless of actual expenses.
Summary Table: Family & Dependent Tax Credits
| Credit | Max Amount | Refundable? | Key Requirement |
| Child Tax Credit | $2,000/child | Partially | Dependent child under 17 |
| Other Dependents Credit | $500/person | No | Dependents who are not children under 17 |
| Child & Dependent Care | Up to $2,100 | No | Care paid for child <13 or disabled adult |
| Adoption Credit | $15,950/child | No (carryover) | Qualifying adoption-related expenses |
Section 2: Education Tax Credits for Individuals
Higher education is expensive, but the U.S. tax code offers valuable credits that can help reduce the financial burden. These credits are designed to offset tuition and other education-related expenses.
Let’s break down the two primary education credits: the American Opportunity Credit and the Lifetime Learning Credit.
American Opportunity Tax Credit (AOTC)
The AOTC is one of the most generous education-related credits, specifically targeting the first four years of postsecondary education.
Who Qualifies:
- You (or your dependent) are enrolled at least half-time in a degree or credential program
- The student has not completed four years of college at the start of the tax year
- You paid qualified education expenses(like tuition, books, and required materials)
- You meet the income limits:
- Phaseout begins at $80,000(single) and $160,000 (married filing jointly)
- Credit phases out completely at $90,000and $180,000, respectively
2025 Benefit:
- Up to $2,500 per eligible student
- 100% of the first $2,000 in qualified expenses
- 25% of the next $2,000
- Refundable up to $1,000— even if you owe no tax
Pro Tip: You must file IRS Form 8863 and have the student’s Form 1098-T from their educational institution.
Need help maximizing your tax credits for individuals? Check out Digital Tax Group’s services or contact us to schedule your consultation today!
Lifetime Learning Credit (LLC)
This credit is more flexible than the AOTC and can be used for any level of education — undergraduate, graduate, or professional development.
Who Qualifies:
- The student is enrolled in eligible courses at a qualifying institution
- The course improves or maintains skills related to your current job, or is part of a degree program
- There’s no minimum enrollment requirement(even part-time students or one-off courses qualify)
- You meet income requirements:
- Phaseout begins at $80,000(single) and $160,000 (married filing jointly)
- Phases out completely at $90,000and $180,000
2025 Benefit:
- Up to $2,000 per return(20% of up to $10,000 in qualified expenses)
- Nonrefundable— it reduces your tax bill, but won’t create a refund
Note: You can’t claim the AOTC and LLC for the same student in the same year — choose the one with the bigger benefit.
What Counts as “Qualified Education Expenses”?
For both credits, eligible expenses typically include:
- Tuition
- Mandatory enrollment fees
- Required books, supplies, and equipment (AOTC only)
Not included:
- Room and board
- Insurance
- Transportation
- Extracurricular activity fees
Summary Table: Education Tax Credits for Individuals
| Credit | Max Amount | Refundable? | Key Limitations |
| American Opportunity | $2,500/student | Yes (up to $1,000) | Only for first 4 years of postsecondary study |
| Lifetime Learning | $2,000/return | No | No limit on years; income limits apply |
Quick Tips to Maximize Education Credits
- File early and verify your 1098-T info from the school.
- Make timely tuition payments by December 31 — even prepaying the spring semester may count.
- If you’re supporting a student dependent, you(not the student) should claim the credit.
- Coordinate credits with 529 plan distributions— don’t “double dip” by using the same expenses for both.
Section 3: Work & Income-Based Tax Credits for Individuals
If you’re earning income from a job or self-employment — especially at modest income levels — the IRS offers several powerful credits that can boost your refund or reduce the taxes you owe. Some of these are even fully refundable, meaning you can receive money back even if your tax liability is zero.
Earned Income Tax Credit (EITC)
The EITC is one of the most substantial tax credits for low- to moderate-income working individuals and families. It’s also one of the most underclaimed — millions of eligible taxpayers miss it each year.
Who Qualifies:
- You must earn income from work(wages, self-employment, etc.)
- You meet the income thresholds (see table below)
- You (and your spouse, if filing jointly) have a valid Social Security number
- You are a S. citizen or resident alien for the full year
- You cannot be claimed as a dependent by another taxpayer
2025 Benefit (Approximate Ranges):
| Dependents | Max Credit | Max Income (Single) | Max Income (MFJ) |
| 0 | $600 | $18,500 | $25,500 |
| 1 | $4,000 | $44,000 | $50,000 |
| 2 | $6,600 | $49,000 | $55,000 |
| 3+ | $7,400 | $53,000 | $59,000 |
Note: Income limits and credit amounts are adjusted annually.
Refundable?
Yes — even if you owe no tax, you may receive a full refund.
Additional Notes:
- If you’re childless and under age 25 or over 65, you’re not eligible unless exceptions apply (such as veterans or students).
- The IRS may delay refunds that include the EITC until mid-February to prevent fraud.
Saver’s Credit (Retirement Savings Contributions Credit)
This credit encourages low- and moderate-income taxpayers to save for retirement by rewarding them with a credit on contributions to IRAs, 401(k)s, and similar plans.
Who Qualifies:
- You’re age 18 or older
- Not a full-time student
- Not claimed as a dependent on someone else’s return
- You contributed to a qualified retirement plan
- Your income is within limits (see below)
2025 Benefit:
- Up to 50% of your contribution, with a maximum credit of $1,000($2,000 if married filing jointly)
| Filing Status | Max AGI for 50% Credit |
| Single | $23,000 |
| Head of Household | $34,500 |
| Married Filing Jointly | $46,000 |
Example: If you contribute $2,000 to a traditional IRA and qualify for the 50% rate, you can receive a $1,000 credit.
Refundable?
No, this is a nonrefundable credit. It reduces your tax bill but cannot generate a refund on its own.
Summary Table: Work & Income-Based Credits
| Credit | Max Credit | Refundable? | Key Requirement |
| EITC | Up to $7,400 | Yes | Low-to-moderate earned income; dependents help maximize it |
| Saver’s Credit | $1,000 ($2,000 MFJ) | No | Contribute to a retirement plan; income limits apply |
Tips to Maximize Work-Based Credits
- File a tax return even if your income is low. Many credits (especially the EITC) require filing to claim.
- Contribute early to your IRA or 401(k) to lock in the Saver’s Credit.
- Use IRS Free File or a trusted tax preparer to ensure you don’t miss credits, especially if you’re self-employed or have irregular income.
Section 4: Healthcare & Energy Efficiency Tax Credits
In addition to supporting your well-being and the planet, certain government programs reward you with tax credits for making responsible decisions—like getting insured or going green. These credits can significantly reduce your tax bill or increase your refund.
Need help maximizing your tax credits for individuals?? Check out Digital Tax Group’s services or contact us to schedule your consultation today!
Premium Tax Credit (PTC)
The Premium Tax Credit helps individuals and families afford health insurance coverage purchased through the Health Insurance Marketplace (Healthcare.gov or a state-based exchange).
Who Qualifies:
- You (or your family) purchased insurance through the Marketplace
- Your income is between 100% and 400%of the federal poverty level (FPL)
- Note: In some years, this cap is temporarily lifted or adjusted
- You do not qualify for Medicare, Medicaid, or affordable employer-sponsored coverage
- You filed Form 8962with your return
2025 Benefit:
- Varies based on income and household size
- The credit covers a portion of your monthly premiums
- You can choose to:
- Receive it in advance to reduce monthly premiums, or
- Claim it when you file your tax return
Refundable?
Yes — if the full credit wasn’t used throughout the year, you can claim the rest at tax time.
Caution: If your income was underestimated on your Marketplace application, you may have to repay some or all of the advance credit received.
Residential Clean Energy Credit (formerly Residential Energy Efficient Property Credit)
This credit rewards homeowners who install renewable energy systems like solar panels, geothermal heat pumps, and small wind turbines.
Who Qualifies:
- You installed qualifying renewable energy equipment at your primary or secondary U.S. residence
- The system is owned by you(not leased)
- Installation was completed during the tax year
2025 Benefit:
- 30% of the cost of qualified systems, including:
- Solar panels and solar water heaters
- Wind turbines
- Geothermal systems
- Battery storage systems (with at least 3 kWh capacity)
- No cap on the credit amount
Refundable?
No, this is a nonrefundable credit — it can reduce your taxes to zero, but won’t trigger a refund.
Pro Tip: You can carry forward unused amounts to future tax years.
Energy Efficient Home Improvement Credit (formerly Nonbusiness Energy Property Credit)
This credit covers a wide range of energy-efficient upgrades, including insulation, windows, doors, and HVAC systems.
Who Qualifies:
- You installed qualified energy improvements in a U.S. home you own and live in
- Improvements meet specific energy-efficiency standards(as set by the IRS and ENERGY STAR)
2025 Benefit:
- Up to $1,200 annually, including:
- $250 per exterior door (up to $500 total)
- $600 for windows and skylights
- $600 for energy-efficient central AC, furnaces, or water heaters
- $150 for home energy audits
Refundable?
No, but the credit resets annually, so you can claim it again next year for new upgrades.
Tip: Always save receipts, manufacturer certifications, and ENERGY STAR labels to support your claim.
Clean Vehicle Credit (EV Tax Credit)
If you purchased a new electric or plug-in hybrid vehicle, you may qualify for this credit, updated and expanded under the Inflation Reduction Act.
Who Qualifies:
- You bought a new EV or PHEV for personal use (not for resale)
- The vehicle meets final assembly in North America and battery sourcing rules
- Your income is below the limit:
- $150,000(single)
- $225,000(head of household)
- $300,000(married filing jointly)
- Vehicle price limits apply:
- $55,000 for cars
- $80,000 for SUVs, vans, and trucks
2025 Benefit:
- Up to $7,500 per qualifying vehicle
- $3,750 based on battery sourcing
- $3,750 based on battery assembly
- May be applied as a point-of-sale discount at the dealership
Refundable?
No, but since 2024, eligible buyers can opt to transfer the credit to the dealer and receive an instant discount, effectively functioning like a refund.
Note: A separate $4,000 used EV credit may apply to previously owned electric vehicles.
Summary Table: Healthcare & Energy Credits
| Credit | Max Credit | Refundable? | Key Details |
| Premium Tax Credit | Varies | Yes | Helps pay Marketplace insurance premiums |
| Residential Clean Energy | 30% of the cost | No | Solar, wind, geothermal, batteries (no dollar cap) |
| Home Improvement Credit | $1,200/year | No | Windows, doors, and HVAC upgrades |
| Clean Vehicle Credit | $7,500 (new), $4,000 (used) | No (but may reduce purchase price) | EVs, income, and vehicle price limits apply |
Section 5: Homeownership & Specialized Tax Credits for Individuals
Owning a home, adopting a child, or dealing with a disability or disaster can come with complex financial needs. Thankfully, the IRS provides targeted tax credits for individuals to help ease the burden in these situations.
Mortgage Credit Certificate (MCC) Program
The Mortgage Credit Certificate is a federal program administered at the state or local level to help first-time homebuyers.
Who Qualifies:
- You are a first-time homebuyer(or haven’t owned a home in the past 3 years)
- You meet your state’s income and purchase price limits
- You received an MCC certificate from a participating housing finance agency
2025 Benefit:
- Credit equals up to 20–50%of annual mortgage interest paid (maximum of $2,000/year if over 20%)
- You can still claim the rest of your mortgage interest as an itemized deduction
Refundable?
No, it’s a nonrefundable credit.
Tip: Not all lenders participate in the MCC program. Ask during the mortgage application process if you’re eligible.
Disaster Relief Credits
In federally declared disaster areas, taxpayers may qualify for special tax relief.
Who Qualifies:
- You live or work in an area designated by FEMA as a federal disaster zone
- You suffered losses not reimbursed by insurance
2025 Benefit:
- While often handled as deductions (e.g., for casualty losses), special credits or penalty waivers may be issued via IRS notices in major disaster events
Example: The IRS may allow penalty-free withdrawals from retirement accounts or provide earned income look-back options to boost your EITC.
Need help maximizing your tax credits for individuals?? Check out Digital Tax Group’s services or contact us to schedule your consultation today!
Other Specialized Credits
Here are a few more niche credits that may apply:
| Credit | Max Amount | Key Use |
| Foreign Tax Credit | Varies | Offset taxes paid to another country |
| Plug-in Electric Motorcycles and Fuel Cell Vehicles | Up to $7,500 | Like EVs, but for motorcycles or hydrogen-powered cars |
| Low-Income Housing Credit (for landlords) | Varies | For investors who build or refurbish affordable housing |
Summary Table: Home Ownership & Specialized Credits
| Credit | Max Credit | Refundable? | Notes |
| MCC (Mortgage Credit Certificate) | Up to $2,000 | No | Issued by state/local housing authorities |
| Disaster Relief Credits | Varies | Sometimes | Issued during federally declared disasters |
Section 6: How to Claim & Maximize Your Tax Credits for Individuals
Tax credits can save you thousands of dollars — but only if you know how to claim them correctly. This section gives you the tools to maximize your refund, minimize costly errors, and stay compliant with IRS requirements.
- Use the Correct IRS Forms
Each credit typically requires a specific IRS form or worksheet to claim. Here’s a quick reference for the most common:
| Credit | IRS Form Required |
| Earned Income Tax Credit (EITC) | Schedule EIC |
| Child Tax Credit (CTC) | Schedule 8812 |
| Premium Tax Credit (PTC) | Form 8962 |
| Adoption Credit | Form 8839 |
| Foreign Tax Credit | Form 1116 |
| Saver’s Credit | No separate form (use Form 1040) |
| Education Credits (AOC, LLC) | Form 8863 |
| Residential Energy Credits | Form 5695 |
| Clean Vehicle Credit | Form 8936 |
Tip: Most tax software will fill out these forms automatically based on your answers.
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Avoid These Common Mistakes
Making errors on your return can reduce your credit, delay your refund, or even cause IRS penalties.
Frequent Mistakes:
- Wrong Social Security numbers(especially for dependents)
- Overestimating expenses(without documentation)
- Claiming dependents incorrectly(e.g., children claimed on someone else’s return)
- Failing to reconcile Advance Premium Tax Credits(Form 8962 is mandatory!)
- Missing phaseout rules for income-limited credits
Solution: Always double-check the IRS instructions for each credit and keep full records of eligibility.
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Maximize Your Credits Strategically
Some credits are refundable (you can get a refund even if you owe no taxes), while others are nonrefundable (they only reduce your tax liability). Here’s how to make the most of them:
Prioritize Refundable Credits:
- EITC
- Premium Tax Credit
- Child Tax Credit (refundable portion)
- American Opportunity Credit (40% refundable)
Stacking Tips:
- Combine the Saver’s Credit with IRA contributions to both grow your retirement and reduce your taxes.
- Time education expenses to maximize the American Opportunity Credit(first 4 years of undergrad only).
- Claim energy credits over multiple years if your tax liability is too low in one year (carry forward applies).
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Track Key Documents Year-Round
Proper documentation is critical in case the IRS requests proof.
| Credit Type | Save These Documents |
| Education Credits | 1098-T, tuition statements, receipts, Form 8863 |
| EV Tax Credit | Bill of sale, VIN, dealership certification |
| Child Tax Credit | Birth certificates, custody agreements |
| Health Insurance | 1095-A (Marketplace), Form 8962 |
| Adoption Credit | Court adoption documents, agency fees, travel receipts |
| Energy Efficiency | Receipts, ENERGY STAR certification, installer info |
Pro Tip: If you’re self-employed or claiming many credits, consider working with a tax professional to avoid mistakes.
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Review Annually & Recalculate
Many credits have income phaseouts, depend on your filing status, or reset annually (like energy credits). Reassess each year:
- Has your income changed?
- Do you qualify for new credits (new child, new job, new home)?
- Are there new IRS rules affecting existing credits?
Example: The Clean Vehicle Credit changed in 2024 to allow point-of-sale transfers — a major benefit if you act early.
Final Thoughts: Credits = Power
Tax credits can slash your tax bill or boost your refund, and they often reward things that benefit your long-term future, like saving for retirement, going to school, raising a family, or upgrading to clean energy.
Even if you don’t think you qualify, double-check every year. Credits change frequently, and some go unclaimed simply because taxpayers don’t realize they exist.
Ready to Maximize Your 2025 Tax Savings?
At Digital Tax Group, PLLC, our experienced CPAs specialize in helping individuals and businesses maximize every available deduction. Whether you need strategic tax planning or expert preparation, we’re here to make the process seamless—and save you money.
Contact us today to schedule your appointment and let us be your trusted tax partner.
305-441-2105
info@digitaltaxgroup.com
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Let’s make 2025 your most tax-efficient year yet!
