Tax Credits (2025)

Credits reduce tax dollar-for-dollar (unlike deductions, which only reduce taxable income). Some credits are refundable (can produce refund beyond tax liability), others non-refundable (limit to tax owed).

Child Tax Credit (CTC) — OBBBA Enhanced

ACTC computation: Lesser of (a) 15% of earned income over $2,500, or (b) unused CTC. Taxpayers claiming FEIE, foreign housing exclusion/deduction cannot claim refundable ACTC (but may still get non-refundable CTC up to tax owed).

Credit for Other Dependents (ODC)

$500 non-refundable credit per dependent who is NOT a qualifying child for CTC (e.g., dependents 17+, elderly parents, qualifying relatives). Phaseout same as CTC ($200K/$400K MFJ). Dependent must have valid ATIN, ITIN, or SSN by the return due date and be a US citizen/national/resident. (ITIN/ATIN accepted for ODC — unlike CTC.)

Earned Income Tax Credit (EITC) — 2025

Refundable credit for low-to-moderate-income workers. Must have valid SSN (employment-authorized) by return due date. Refund not issued before mid-February (PATH Act). Investment income limit: $11,950. Cannot file Form 2555. MFS generally disqualified (limited exception for separated spouses under ARPA rules).

Childless EITC: ages 25-64 (one spouse sufficient for MFJ), US resident >half year. Earned income = wages, tips, combat pay, SE income, union strike benefits. Excludes Social Security, SSI, welfare, alimony, child support, pensions, unemployment, prisoner pay, investment income. Tax-exempt combat pay and Medicaid waiver payments may be elected as earned income.

EITC fraud/disallowance: Reckless/intentional disregard → 2-year ban; fraud → 10-year ban. Form 8862 required to re-claim after disallowance.

Child & Dependent Care Credit (CDCTC)

Credit for expenses paid for care of qualifying child (under 13) or disabled dependent/spouse while working/looking for work. 20%-35% of expenses, up to $3,000 (1 dependent) or $6,000 (2+ dependents). Non-refundable for 2025. Rate is 35% at low AGI, dropping to minimum 20% when AGI > $43,000.

Qualifying person: child under 13, disabled spouse, or any disabled dependent who cannot self-care (also a person who COULD be a dependent except their gross income ≥ $5,200). Earned income test: both spouses must have earned income (full-time student or disabled spouse gets deemed earned income: $250/mo for 1 person, $500/mo for 2+). FSA-reimbursed amounts reduce qualifying expenses. MFS allowed only if lived apart last 6 months. Provider identification required (foreign providers need no US tax ID).

American Opportunity Tax Credit (AOTC)

Per student, per year (first 4 years of higher education):

• Up to $2,500 (100% of first $2,000 + 25% of next $2,000)
• 40% refundable (up to $1,000)
• Phaseout: MAGI $80K-$90K ($160K-$180K MFJ); MFS cannot claim
• Student: degree candidate, ≥ half-time, no felony drug conviction, first 4 years
• Qualified expenses: tuition, required fees, books, supplies, equipment (NOT room/board or student health fees)
• ITIN accepted (currently) for AOTC

Lifetime Learning Credit

• Up to $2,000 (20% of first $10,000 of expenses)
• No limit on number of years; all levels of postsecondary education; no degree/workload requirement; felony drug conviction OK
• Non-refundable
• Phaseout: MAGI $80K-$90K ($160K-$180K MFJ); MFS cannot claim
• Per TAXPAYER (not per student)

Both education credits: Form 8863. Must reduce qualified expenses by tax-free education assistance (Pell grants, scholarships, employer assistance). Non-qualified: room/board, medical, insurance, transportation, student health fees (even if mandatory).

Adoption Credit — OBBBA

Per eligible child (not per year). If claiming expenses across multiple years for the same child, subtract prior-year credits from the max.

Qualified child: Under age 18, OR physically/mentally incapable of self-care (any age). Domestic, foreign, private, and public foster care adoptions all eligible.

Timing: Domestic — claim as incurred/paid; if not finalized, claim following year; can claim even if unsuccessful (US citizen/resident child). Foreign — claim only after adoption final (all past expenses at once).

Special needs child (OBBBA expanded): Indian tribal governments now have same authority as states to determine special needs. If state/tribal government certifies the child, claim the FULL credit even without qualified expenses.

Employer-provided adoption benefits: Exclusion up to $17,280 from income (Form W-2 Box 12 Code T). Must claim exclusion BEFORE the credit — cannot claim both for same expenses.

Qualified expenses: Adoption fees, attorney fees, court costs, travel (meals/lodging), home studies. NOT eligible: surrogate arrangements, spouse's child adoption, expenses paid by government programs.

Retirement Savings Contributions Credit (Saver's Credit)

Non-refundable credit for low-income retirement contributions. Up to $1,000 ($2,000 MFJ). Rate 10%-50% based on AGI and filing status. Must be ≥18, not a full-time student, not a dependent. ABLE account contributions may also qualify. Form 8880.

Note: Saver's Match (was to replace Saver's Credit in 2027) was repealed by OBBBA — current Saver's Credit continues. Must reduce contributions by distributions received in prior 2 years, current year, and through return due date.

Foreign Tax Credit (FTC)

Credit for foreign income taxes paid (Form 1116). Can take credit OR deduction (not both same year; can switch years). Excess credit carries back 1 year, forward 10 years. De minimis rule: may skip Form 1116 and claim directly on Schedule 3 if all foreign income is passive (reported on 1099-DIV/1099-INT) and total foreign tax ≤ $300 ($600 MFJ). Not available for taxes paid to Iran, North Korea, Sudan, or Syria. Cannot claim FTC on income excluded under FEIE/foreign housing.

Individual Energy Credits (Form 5695) — terminate after 2025

Residential Clean Energy Credit (formerly Residential Energy Efficient Property): 30% of cost (incl. certain labor/installation) of solar, wind, geothermal, solar water heating, fuel cells, battery storage installed on taxpayer's residence (main or 2nd home, owned or leased; fuel cells must be on main home). No annual/lifetime dollar cap (fuel cells have specific limit). 2025 is the LAST year — installation must be completed and the property placed in service by Dec 31, 2025; prepayment alone does not preserve the credit.

Energy Efficient Home Improvement Credit (formerly Nonbusiness Energy Property): 30% of qualified improvement costs. Overall annual cap $1,200 (building envelope components, energy audit, etc., with sub-limits) + separate $2,000 annual cap for qualified heat pumps / heat pump water heaters / biomass stoves/boilers. Non-refundable, no carryforward. Terminates after 2025. PIN requirement (2025): must include product identification number (PIN) or 4-digit qualified manufacturer (QM) code for qualifying property placed in service in 2025.

Clean Vehicle Credits — terminate Sept 30, 2025

New Clean Vehicle Credit: $3,750 (critical minerals met) or $7,500 (both critical minerals + battery components). Final assembly in North America. MSRP cap: $55,000 (cars) / $80,000 (trucks/SUVs/vans). MAGI cap: $300,000 MFJ/QSS, $225,000 HoH, $150,000 Single/MFS (use lesser of current or prior year MAGI). Credit applies to vehicles acquired on or before Sept 30, 2025. A binding written contract plus payment by that date can establish acquisition even if delivery/placed-in-service occurs later.

Used Clean Vehicle Credit: lesser of 30% of cost or $4,000. Must buy from dealer. Cost ≤$25,000. Model year at least 2 years older than current. MAGI cap: $150,000 MFJ/QSS, $112,500 HoH, $75,000 Single/MFS. Same dealer-transfer election available through Sept 30, 2025.

Both credits terminate for vehicles purchased after Sept 30, 2025.

Premium Tax Credit (PTC)

Refundable credit for health insurance purchased through Marketplace. Based on income relative to FPL. Advance payments (APTC) reconciled on Form 8962. 2025 repayment limits: $375-$3,250 (single) / $750-$3,250 (other) depending on income vs. FPL; no limit if ≥400% FPL. 2026+ (OBBBA): repayment limits fully repealed — all excess APTC must be repaid regardless of income. See ACA page.

Excess Social Security / RRTA Tax Withheld

Fully refundable credit for employees who had too much Social Security (or RRTA) tax withheld due to working multiple jobs (combined wages > $176,100 SS wage base, 2025). If a single employer over-withheld, that's an employer error — employer must adjust; if employer refuses, file Form 843.

Preparer Due Diligence (Form 8867)

Paid preparers MUST complete and attach Form 8867 (Due Diligence Checklist) for any return claiming: EITC, CTC, ODC, AOTC, or HoH filing status. Penalty for failure to comply.

TIN / SSN Requirements by Credit

Late TINs cannot be used retroactively: If SSN not obtained by return due date (incl. extension), cannot amend later to claim EITC/CTC/ACTC. Example: file 2025 return Feb 2026 with ITIN, get SSN May 2026 (after April 15 due date, no extension) → cannot amend to claim EITC.

Key Exam Tips

• Refundable vs. non-refundable: Fully refundable (EITC, PTC, excess SS/RRTA), partially refundable (ACTC $1,700, AOTC 40% up to $1,000, Adoption up to $5,000), fully non-refundable (ODC, Lifetime Learning, Saver's Credit, CDCTC, energy credits, clean vehicle credits)
• MFS disqualifies: EITC, CDCTC (generally), adoption credit (generally), AOTC/Lifetime Learning
• SSN required (OBBBA): CTC/ACTC/EITC require valid SSN. ITIN holders excluded from CTC/ACTC/EITC but may claim ODC and AOTC.
• Energy & vehicle credits expire: Residential Clean Energy & Energy Efficient Home Improvement terminate after 2025; Clean Vehicle credits terminate Sept 30, 2025.