Three tax breaks that could benefit families, students

A tax credit is among the most satisfying benefits you can turn up when preparing your return.

Unlike a deduction, which decreases the income on which you’ll be taxed, a tax credit reduces your overall tax due. The result can mean hundreds of dollars knocked off your bill or added to your refund.

Before you file your return, here are some tax credits you may want to review.

Income

The earned income tax credit is one of the most common income tax breaks, designed to help middleand lower-income families.

For the 2021 tax year, 4 out of 5 filers claimed this tax credit, with an average benefit upward of $2,000. The total value of those credits was about $64 billion, the IRS said.

Even better, if the credit amount is higher than your tax owed, the government will pay you the difference.

Eligibility for the EITC mostly depends on income, and you have to have worked to receive the credit. For the 2022 tax year, the income limits range from $16,480 to $59,187, depending on your filing status.

There are a few other requirements, including:

You can’t have more than $10,300 in investment income.

Everyone on your tax return has to have a valid Social Security number.

Children

If you’ve used the child tax credit in the past, it’s important to remember that this benefit has undergone significant changes.

During the pandemic, the government temporarily increased the credit amount, providing thousands of dollars’ worth of relief to some families. But in 2022, the credit reverted to its previous levels. Taxpayers who saw a big refund last year may be disappointed this time around.

The benefit can reach $2,000 per qualifying child, and up to $1,500 of that is refundable. People with dependents who don’t qualify for the full credit can be eligible for a credit up to $500.

Families with children younger than 17 are generally eligible for the child tax credit as long as their kids have valid Social Security numbers. However, the amount you can claim depends on your income.

The credit begins to phase out once your adjusted gross income exceeds $200,000, or $400,000 for those married filing jointly. At a certain income level, the benefit lapses entirely.

Education

The American opportunity credit and lifetime learning credit are education-focused tax breaks. Both have a similar setup, but they are tailored toward different types of costs.

The American opportunity credit is targeted toward students pursuing formal degree programs. The lifetime learning credit, on the other hand, can be used for other types of training and education.

The partially refundable American opportunity credit is also more generous: Taxpayers can claim up to $2,500 per eligible student, including for expenses beyond tuition, such as course materials. With the nonrefundable lifetime learning credit, you can claim $2,000 per tax return for tuition only, regardless of how many students would be eligible. You can’t claim both credits for one student.

The eligibility criteria for these two education credits vary. For instance, the American opportunity credit can only be used for four years of post-secondary education, and eligible students have to be enrolled at least half time. The lifetime learning credit is broader, and can apply to graduate courses or vocational classes.

The credits have basic eligibility requirements in common. Both share an income limit of $90,000 for single filers and $180,000 for married people filing jointly.