Okay, I’ve given you two very good but hardly used tax credits in my prior articles. Now let’s go over some basics. I’m sure most of you know the difference between a tax credit and a tax deduction but I’ll reiterate here for clarification. A tax credit is a direct reduction in the amount of tax you are liable for, versus a tax deduction which lowers your taxable income. Although both will save you money, the tax credit is by far the better money saver (excepting of course, the IRS!).
There are only two tax credits that will actually put the IRS in negative status, meaning you can get a refund even if you have ZERO tax liability. First is the Earned Income Credit or EIC for short. Second is the Additional Child Tax Credit. The Earned Income Credit is for people that have EARNED income (W2 wages or self employment income) and can be claimed according to a table (see IRS instructions for EIC). There are age limititations (you must be at least 25 but under 65 unless you have a qualifying child) and basically a low earned income (i.e.- poor) to qualify. The additional Child Tax Credit is for people with one or more qualifying children who have tried to take the Child Tax Credit and have reached zero tax liability. It also has exclusions and limitations but is definitely worth doing the calculations if you have low income and a child or children.
Ther are numerous other credits for things involving businesses and energy (green) technology that you may be eligible for but again, the two mentioned above are the ONLY credits that will give you a refund even if you have NO tax liability.