what is tax credit

Are you struggling with the golden question, ‘What is tax credit?’ Many people do not understand this concept and, as a result, lose out on many benefits. 

Those with middle and low income can significantly benefit from using these tax credits. Here’s a list of tax credits you should be using if you are not already using one if you qualify to use it. 

Earned Income Tax Credit

Taxpayers greatly benefit from using this particular credit. The government started this tax credit in 1975 to relax taxpayers from the social security tax burdens. The eligibility for this tax credit depends mainly on your marital and income status. They consider investment, adjusted, gross, and earned income before a person qualifies for it. 

Here are some of the criteria a person must meet to qualify:

  1. You must be at least 25 years or older but should not cross 65 years to qualify.
  2. If you are married, both you and your spouse should have lived in the country for more than six months and should have valid social security numbers. 
  3. You do not qualify for this tax credit if you are dependant on another person’s tax return.

You will not qualify if you do one of the following:

  1. If you are married, and you and your spouse are filing tax returns separately.
  2. You did earn more than $3650 on the investment income. 

Even self-employed professionals can claim this credit. You must check your eligibility every year. Do this every year, even when you think you will not qualify. Speak with a professional tax preparer if you have questions. 

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Lifetime Learning Credit

It is a tax credit that people who want to pursue further education (post-secondary education) might have to pick. Even if you are not planning to enroll in a degree, you will qualify for this credit. 

  1. Eligible students might qualify for tax credit upto 2000 dollars. 
  2. In 2020, If you are earning $59,000 or less and qualify for this credit, you might get full credit. A married couple should make around $ 118,000 or less to be eligible for full credit.
  3. The credit amount phases out when you start to earn more income than the limit above.

American Opportunity Tax Credit

The hope credit, which is now called the American Opportunity Tax Credit, did help many families in the past to pay for higher education. Here’s how you qualify for it:

1. This credit helps in covering post-secondary education for the next four years.

2. You can be eligible for full credit if your MAGI or modified adjusted gross income is around $80,000. For married couples, the gross amount can be about 160,000 dollars.

3. Student who is applying for this credit should be enrolled in a course at least half of the time in an academic year

4. The amount of credit you can get drops as you earn more income. 

If you are still thinking what is tax credit and how it can help me? Contact a professional tax preparer who can help you to enhance your knowledge on this subject.