How Do You Know If You’re Eligible for Tax Credits in 2019?

Let’s face it; paying taxes is not fun, but paying less thanks to tax credits don’t make it fun, but do perhaps makes it a little better. While tax deductions let you reduce your taxable income (which then gets taxes at your tax rate), tax credits offer a dollar-for-dollar break. Tax laws have seen multiple changes during the Obama and Trump administrations, and some of those changes affect tax credits.

To clarify, tax credits are neither deductions nor exemptions. Tax deductions like home mortgage interest and charity donations reduce your taxable income. Tax exemptions like your personal and dependent exemptions are excluded from taxable income. A tax credit is a set amount you used to reduce the amount of taxes owed.

Still confused?

The IRS allows you to use tax credits under certain conditions. Some common examples follow:

• Certain mortgage programs like those extended to low-income first-time owners provide a qualified Mortgage Credit Certificate (MCC).
• Disabled and elderly taxpayers are granted to those with total and permanent disability and those 65 years of age or more. (The tax credit is reduced by earned income above certain levels.)
• Contributions to retirement savings are eligible for nonrefundable credits.
• Low-income taxpayers get tax credits depending on how many children there are in their household.
• And, some states offer their own tax credits to residents.

What tax credits apply to you for tax year 2019?

Tax credits are great if they apply to you and if you know about them. Let’s dive into some common tax credits and discuss if/how they apply to you.

• Child Tax Credit: The IRS treats children (woohoo Baby Money Finance!) under 17 (as of December 31, 2019) as qualified for the Child Tax Credit if you provide most of their support. Currently, the credit amounts to $2,000 per qualifying child. However, the credit amount is restricted by your Adjusted Gross Income (AGI); that is, the more you report as AGI, the lower the tax credit. In 2019, those limits will be:

Status	Full Credit Stops at AGI	Credit Disappears at AGI
Single	$200,000	$240,000
Head of Household	$200,000	$240,000
Married Filing Jointly	$400,000	$440,000
Married Filing Separately	$200,000	$240,000

Here’s a link to the full IRS document (if you’re interested in reading all 14 pages of it).

An Adoption Creditis also available for taxpayers who have adopted a child during the tax year. NACAC (National American Council on Adopted Children) reports, “For adoptions finalized in 2019, there is a federal adoption tax credit of up to $14,080 per child. The 2019 adoption tax credit is NOT refundable, which means taxpayers can only use the credit if they have federal income tax liability.”

The adopted child must be under 18 or physically or mentally unable to take care of him or herself. The adopting parents are eligible if their AGI falls below $211,160. Those with AGI between $211,169 and $251,169 can claim partial credit, but eligibility disappears at $251,160.

• Earned Income Tax Credit (EITC):This credit is meant for lower-income families. It is restricted by taxpayer income, and the credit is also a function of the number of children.                 

Children	Single	Married	Max credit
≥ 3	$50,162	$55,952	$6,557
2	$46,703	$52,493	$5,828
1	$41,094	$46,884	$3,526
0	$15,570	$21,370	$529

            Source: Internal Revenue Service

• Retirement Savings Contributions Credit: It’s probably no surprise, but we Americans have not been good savers, especially when it comes to our future retirement. To encourage taxpayers earning less than $64,000 to invest in retirement savings programs, the IRS offers credits on deposits to tax-advantaged accounts like IRAs (traditional and IRA), 401(k), 403(b), SEP-IRA, Governmental 457(b), Thrift Savings, and scores of other plans.

The maximum eligible contribution is $2,000, and the maximum Tax Credit is 50%. That makes the maximum credit $1,000. So, not a ton but of course better than nothing! A summary of the 2019 Tax Credit for savers:

	Married AGI	Head of HouseholdAGI	Single AGI
50% of Contribution	≤ $38,500	≤ $28,875	≤ $19,250
20% of Contribution	$38,501-$41,500	$28,876-$31,125	$19,252-$20,750
10% of Contribution	$41,501-$64,000	$31,126-$48,000	$20,751-$32,000

Full IRS publication

• American Opportunity Tax Credit (AOTC): The AOTC allows a partially refundable credit for college tuition, textbooks, and fees. You could deduct up to 100% of the initial $2,000 and 25% of the next $2,000 spent on qualifying expenses per student. The credit may be claimed for up to four years (i.e. so grad school may not count if you used it for your undergrad. We learned this when Mrs. Money went to grad school).

You must be enrolled in a standard four-year college degree program at least half-time, at least six credit hours per semester. To be eligible for the full credit, the taxpayer must have an AGI of $160,000 or less if filing a joint return or $80,000. (The ability to claim the credit disappears for a joint AGI of $180,000 or $90,000.)

You may be eligible for the Lifelong Learning Tax Credit to help with up to $2,000 in tuition and expenses in undergraduate, graduate, and professional degree programs. It also covers studies to improve job skills, and there is no restriction on years you can claim eligibility. You can use the Lifelong Learning Tax Credit for yourself, a dependent, or a qualified third party.

• Premium Tax Credit:If you or a family member has health insurance through the Marketplace set up by the Patient Protection and Care Act for at least one calendar month of 2019, you may be eligible for the Premium Tax Credit. 

The credit is not available to those who are eligible for affordable health insurance through your employer or for Medicare, Medicaid, of TRICARE. You are not eligible if your income exceeds specific limits, if you are filing a married separately return, if you are claimed as a dependent on another person’s filing, and if you did not purchase the insurance from the Marketplace. However, there are some exceptions for victims of domestic abuse or spousal abandonment.

There’s even more!

The Tax Credits reviewed here are available to most taxpayers. According to The Guardian, tax credits redistribute income. “The main purpose of tax credits is to help families on lower pay make ends meet.”

We’ve so far just looked at tax credits for individuals bu there are also a lot of credits for entrepreneurs and business owners. Governments look favorably on these types of job creating activities and as such, offer tax credits. Entrepreneurs might quality for credits supporting Disability Access, Employer-Provided Childcare, Alternative Motor Vehicle use, Rehabilitation, Energy, and Reforestation Investment, and Research and Development. If you qualify, as individual family, or business, there are considerable savings available.

Hopefully that gave you a sense of the tax credits available out there. Hopefully any tax preparation software will help catch and/or point out ones that qualify, but it’s wise to go into tax season knowing which ones you may or may not qualify for!

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