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Every year, millions of Americans miss out on federal tax credits that could lower their tax bill or increase their refund. These credits can help pay for education, child care, health insurance, and even retirement savings. Many people simply do not know these credits exist or think they do not qualify.
Tax credits are powerful because they reduce your tax bill dollar for dollar. For example, if you owe the IRS $1,000 and you qualify for a $1,000 tax credit, your tax bill becomes zero. This is different from a tax deduction, which only reduces the income you are taxed on.
There are three kinds of tax credits:
- Refundable: You receive the full amount even if you do not owe taxes.
- Nonrefundable: Your tax bill can be reduced to zero, but anything left over is not refunded.
- Partially refundable: A portion may be refunded after your tax bill reaches zero.
Below are five tax credits that are often overlooked, along with tips for claiming them for the 2025 tax year.
1. Retirement Savings Contributions Credit (The Saver’s Credit)
Many people are surprised to learn that saving for retirement might earn them a tax credit. This nonrefundable credit applies when you contribute to accounts such as:
- A traditional or Roth IRA
- A 401(k), 403(b), or other employer retirement plan
- An ABLE account for which the taxpayer is the designated beneficiary.
The credit can be worth up to 50% of your annual contributions, with a maximum credit of:
- $1,000 for single filers with income up to $39,500
- $2,000 for married couples filing jointly with income up to $79,000
Important rules:
- Rollover contributions do not qualify.
- Recent withdrawals from retirement plan, IRA or ABLE accounts may reduce your credit.
- You cannot claim this credit if someone else claims you as a dependent or if you are a full-time student. (Must be at least 18 years old by the end of the tax year.)
Filing Tip: Use Form 8880 and attach it to your Form 1040 or 1040-SR with Schedule 3.
2. Child and Dependent Care Tax Credit
Many parents miss this nonrefundable credit because they think only traditional childcare counts. In reality, the IRS allows a wide range of care expenses, including:
- Before and After-school care
- Summer day camps
- Childcare while you work or look for work
- Care for an adult who lives with you and cannot care for themselves
To qualify, your child must be under age 13, unless the dependent is physically or mentally unable to care for themselves.
For 2025, you may claim:
- Up to $3,000 in expenses for one dependent
- Up to $6,000 for two or more dependents
Your credit will be worth 20% to 50% of those expenses, depending on income. There are no income limits for qualifying, but higher incomes receive a smaller percentage.
If you use a Dependent Care Flexible Spending Account at work, the amount you exclude or deduct from income reduces the dollar limit for the credit.
Filing Tip: Use Form 2441 and attach it to your Form 1040 or 1040-SR.
3. Lifetime Learning Credit
This nonrefundable credit helps taxpayers pay for educational expenses beyond the first four years of college. It applies to:
- Graduate school
- Trade schools
- Professional or continuing education courses
- Job-skill training
The credit is worth 20% of up to $10,000 in eligible expenses. You can receive the full credit if your income is:
- Up to $80,000 as a single filer
- Up to $160,000 if married filing jointly
The credit phases out as income increases above those amounts.
Additional rules:
- A student cannot claim the credit if they are claimed as someone else’s dependent.
- Married filing separately taxpayers cannot claim the credit.
Filing Tip: Use the information from your school’s Form 1098-T and enter it on Form 8863.
4. Energy-Efficient Home Improvement Credit
Homeowners who make qualifying energy-saving improvements before December 31, 2025, may claim this nonrefundable credit. Eligible improvements include:
- Exterior doors and windows
- Insulation
- Heat pumps and central air conditioning
- Furnaces and water heaters
- Solar panels
- Home energy audits
The credit covers 30% of qualifying expenses, up to a maximum of $3,200 per year. Some improvements have their own limits, such as:
- $150 for a home energy audit
- Up to $600 for certain windows and skylights
Most products must be from qualified manufacturers registered with the IRS. Please note under the OBBBA, this credit will expire and will only be available through December 31, 2025.
Filing Tip: Keep receipts that include the manufacturer’s identification number. Use Form 5695 when filing your return.
5. Earned Income Tax Credit (EITC)
The EITC is a refundable credit that supports low- and moderate-income workers and families. Unfortunately, about 1 in 5 eligible taxpayers never claim it.
To qualify, you must have earned income in 2025 and meet IRS income guidelines. The credit amount depends on:
- How much you earned
- Your filing status
- How many qualifying children you have
Maximum credit amounts for 2025:
- $649 with no children
- $4,328 with one child
- $7,152 with two children
- $8,046 with three or more children
Income limits for 2025:
- Income limits are dependent on filing status and the number of children or relatives claimed
Other requirements include:
- A valid Social Security number
- U.S. citizenship or resident alien status
- Investment income of $11,950 or less
- Special rules apply to those who are married filing separately
Filing Tip: File Form 1040 or 1040-SR. If you claim a qualifying child, attach Schedule EIC.
Taking time to review these credits can make a real difference in your tax bill. Many taxpayers qualify for at least one of them without realizing it. A careful look at your income, expenses, and life changes during the year can help you identify opportunities to save. If you have questions about your eligibility, a tax professional can guide you through the rules and help you claim every credit that applies to your situation.