Get Ready for Taxes: Important Things to Know About Tax Credits
With the tax filing season quickly approaching, the Internal Revenue Service recommends taxpayers take time now to determine if they are eligible for important tax credits. It helps to get ready now.
This is the second in a series of reminders to help the taxpayers Get Ready for the upcoming tax filing season. Additionally, the IRS recently updated its Get Ready page with steps to take now for the 2020 filing season.
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for working people with low to moderate incomes who meet certain eligibility requirements. Because it’s a refundable credit, those who qualify and claim EITC pay less federal tax or pay no tax. Some may even get a tax refund. Furthermore, EITC can mean a credit of up to $6,557 for working families with three or more qualifying children. Workers without a qualifying child may be eligible for a credit up to $529.
To get the credit, you must have earned income and file a federal tax return — even if they don’t owe any tax or aren’t otherwise required to file.
Taxpayers can use the EITC Assistant to find out if they are eligible for EITC, determine if their child or children meet the tests for a qualifying child and estimate the amount of their credit.
Two credits can help the taxpayers paying higher education costs for themselves, a spouse or dependent. The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) are claimed on Form 8863, Education Credits. The AOTC is partly refundable.
To get either credit, the taxpayer or student usually must receive Form 1098-T, Tuition Statement, from the school attended. Some exceptions apply. See the instructions to Form 8863 for details.
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