Tax credits guide: How to find and claim credits on your federal income tax return

To find and claim tax credits, start by identifying which credits apply to your situation. Common examples include the Child Tax Credit, Earned Income Tax Credit (EITC), and education credits like the Lifetime Learning Credit. Use IRS instructions or consult Form 1040 instructions to confirm eligibility. When filing your return, ensure you include the necessary forms and documentation to claim the relevant credits.

• Tax credits reduce tax bills dollar-for-dollar, offering more savings than deductions, which only lower your taxable income.
• Refundable credits can get you money back even if you owe zero taxes, while nonrefundable credits can only reduce your liability to zero.
• Major credits for 2025 include the Child Tax Credit (CTC), Earned Income Tax Credit (EITC), and various education and energy incentives.
• pdfFiller simplifies the process, allowing you to easily complete, edit, store, and securely share forms like Form 1040, Form 2441, and Form 8863 online.

Introduction

Filing your federal income tax return can feel like navigating a maze. However, understanding the specific forms required—primarily Form 1040 (U.S. Individual Income Tax Return) and its supporting schedules—is the key to unlocking significant financial relief.

This guide covers tax credits, a powerful tool for taxpayers. Unlike deductions that lower taxable income, tax credits directly reduce the tax you owe. For families, students, and lower-income workers, they can mean the difference between owing money and receiving a refund. Let’s break down what you need to know for the 2025 tax season.

What are tax credits, and how do they work?

A tax credit is a specific amount of money that taxpayers can subtract directly from the taxes they owe to the government. A tax credit reduces the amount of tax you owe. If you qualify for a $1,000 credit, it can reduce your federal income tax by $1,000, dollar-for-dollar.

Credits usually apply after you calculate your tax on taxable income. That’s why many taxpayers view credits as more direct “tax relief” than deductions. In practical terms, tax credits work by lowering your total tax, increasing your refund, or both—depending on whether the credit is refundable.

Tax credits change over time based on legislation and policy priorities. For example, the IRS notes that the One, Big, Beautiful Bill Act (signed July 4, 2025) significantly affects federal taxes, credits, and deductions.

What is the difference between a tax credit and a tax deduction?

Many people use the terms “tax deduction” and “tax credit” interchangeably, but they function very differently on your federal tax return. A tax deduction reduces the amount of your income that is subject to tax, while a tax credit reduces the tax itself. The IRS summarizes it this way: credits reduce the tax due, and deductions reduce taxable income.

Here’s a quick example:

• If you have a $1,000 deduction, your savings depend on your tax bracket.
• If you have a $1,000 tax credit, your tax goes down by $1,000.

This matters when deciding what to document. For credits, the IRS expects clear proof of eligibility, such as dependent info, tuition statements, Marketplace forms, or adoption records.

What are the types of tax credits?

Credits generally fall into two categories: refundable and nonrefundable. Understanding the distinction is vital because it determines if you can get money back after your tax liability hits zero.

• Nonrefundable credit: This can reduce your tax to zero, but not below. If you owe $500 and have a $1,000 nonrefundable credit, you pay nothing, but you lose the remaining $500 value.
• Refundable tax credit: This can reduce your liability to zero and result in a refund for the excess amount. If you have a fully refundable credit of $1,000 and owe $500, the IRS sends you a check for the remaining $500.

What tax credits can I claim for the 2025 tax year?

Below is an overview of major tax credits for the 2025 tax year that filers commonly look for on a federal tax return. Eligibility depends on your taxpayer’s income, filing status (including married filing jointly), and details like dependents, education costs, or healthcare coverage.

Common individual tax credits to check

Here are some of the most common tax credits for individuals:

• Child tax credit (plus additional child tax credit refundable portion) and credit for other dependents
• Earned income tax credit (EITC)
• Child and dependent care credit (Form 2441)
• Education credits (AOTC and Lifetime Learning; Form 8863)
• Premium tax credit (Form 8962) for Marketplace coverage
• Energy credits for home improvements, residential clean energy, and clean vehicles (subject to some expiring rules)
• Adoption credit
• Saver’s credit (for retirement contributions)

If you’re asking, “What tax credits can I claim?” start with this list and then match each credit to your documents and forms. Many credits have income limits or credit phases that reduce the benefit as income rises.

Child Tax Credit and additional CTC

The Child Tax Credit (CTC) is one of the most widely claimed benefits for families. It provides financial support to parents and guardians to help offset the cost of raising a child.

How much is the credit amount?

The Child Tax Credit provides up to $2,200 for each qualifying child. If you have little or no federal tax liability, you may be eligible for the Additional Child Tax Credit (ACTC), which offers up to $1,700 per child based on your income. To qualify for the ACTC, you must have earned at least $2,500.

Who is a qualifying child?

To qualify for the child tax credit, you and each eligible child must generally have a Social Security number valid for employment, issued before the tax return’s due date (including extensions). The child must be under 17 at the end of the year, live with you for more than half the year, and be claimed as a dependent.

Income limits and phase-outs

You qualify for the full Child Tax Credit if your annual income is $200,000 or less ($400,000 for those married filing jointly). If your income is above these limits, the credit amount decreases, and you may only receive a partial credit.

Where to claim it on your federal income tax return

To claim the credit, you need to list your qualifying children as dependents on your main tax form, Form 1040, U.S. Individual Income Tax Return. You must also complete and attach the separate Schedule 8812, Credits for Qualifying Children and Other Dependents, to calculate the exact credit amount you’re eligible for.

Screenshot of Page 1 of the IRS Schedule 8812 (Form 1040), which is used to calculate credits for qualifying children and other dependents, displayed within the pdfFiller editor.

Is CTC refundable?

The Child Tax Credit (CTC) can be partially refundable, but not always.

• Nonrefundable portion: The CTC first reduces your federal income tax bill to $0 (this part is nonrefundable).
• Refundable portion (Additional Child Tax Credit): If you still have remaining CTC after your tax is reduced to $0, you may be able to receive some of the leftover amount as a refund through the Additional Child Tax Credit (ACTC)—up to $1,700 per qualifying child for tax year 2025, depending on your earned income and other limits.

To be eligible, you must have an earned income of at least $2,500 to claim the refund.

In short, CTC isn’t fully refundable for everyone, but many eligible taxpayers can receive a refundable tax credit amount via the ACTC even if they don’t owe federal income tax.

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is a refundable tax credit for low- to moderate-income workers. The IRS bases the credit on your income, filing status, and number of qualifying children (if any). It is one of the largest anti-poverty programs in the U.S.

Who qualifies for the EITC?

To qualify, you must have earned income from working for someone or from running a business or farm. You must meet specific rules for adjusted gross income (AGI) and investment income limits. Your filing status also matters; usually, those who are married filing jointly or head of household have higher income thresholds than single filers.

How much is the maximum EITC amount?

The credit amount depends on your income and the number of qualifying children you have. For the 2025 tax year (reported in 2026), the IRS lists these maximum credit amounts:

• $649 (no qualifying children)
• $4,328 (1 qualifying child)
• $7,152 (2 qualifying children)
• $8,046 (3 or more qualifying children)

The IRS also lists maximum AGI thresholds by filing status, plus an investment income limit of $11,950 or less for tax year 2025.

The EITC is complex because the credit phases in as you earn money, reaches a plateau (maximum credit), and then phases out as your income increases. It is a fully refundable credit, meaning you can get the full amount back if you owe no tax.

Child and dependent care tax credit

The Child and Dependent Care Credit is a nonrefundable federal tax credit helping working parents or guardians cover expenses for child care (under age 13) or disabled dependents/spouses while working or looking for work. If you pay someone to care for your child so you can work or look for work, you may be eligible for this type of tax credit.

What expenses qualify?

Expenses qualify for the child and dependent tax credit only if they are work-related—meaning they were paid so you (and your spouse, if filing jointly) could work or look for work. The care must be for a qualifying person—typically a child under 13 or a spouse/dependent unable to care for themselves.

Common qualifying expenses include:

• Daycare, babysitters, nannies, and in-home care (including housekeepers if part of their role is caring for the qualifying person).
• Nursery school, preschool, and similar programs below kindergarten (including meals/activities if inseparable from care).
• Before- and after-school care for children in kindergarten or higher.
• Summer day camps, even those focused on activities like sports or computers.
• Agency fees, application fees, and deposits for securing care (excluding forfeited deposits if no care is provided).
• Transportation to/from care provided by the caregiver (not your own transportation).

Expenses that do not qualify include overnight camp, kindergarten or higher-grade tuition, summer school, and tutoring that isn’t primarily care.

How do I claim this credit?

You must file Form 2441 with your federal income tax return. You will need to provide the care provider’s name, address, and Taxpayer Identification Number (TIN) or Social Security number. If you received dependent care benefits from an employer (often shown on Form W-2), you must also complete the dependent care benefits section.

What are the expense limits and credit percentage?

The IRS limits eligible expenses for the credit to $3,000 for one qualifying person or $6,000 for two or more. The credit is calculated as a percentage of work-related expenses, which varies based on your adjusted gross income (AGI). According to IRS Publication 503, the percentage ranges from 35% for lower income levels to 20% for those with an AGI above $43,000.

Education credits (AOTC and lifetime learning)

Education credits are tax benefits that can help offset the cost of higher education by reducing the amount of tax owed. They help offset tuition and fees. The IRS uses Form 8863 to claim your education credits. These credits are based on qualified education expenses paid to an eligible postsecondary institution. For the 2025 tax year, there are two available credits:

• The American Opportunity Credit (partially refundable)
• The Lifetime Learning Credit (nonrefundable)

American Opportunity Tax Credit (AOTC)

The AOTC is available to students earning a degree or recognized educational credential and applies to the first four years of post-secondary education.

• Maximum credit: Up to $2,500 per eligible student.
• Refundability: It is partially refundable. If the credit brings your tax down to zero, you can have 40% of any remaining amount of the credit (up to $1,000) refunded to you.
• Requirements: The student must be enrolled at least half-time for at least one academic period.

Lifetime Learning Credit (LLC)

The LLC provides a tax credit for qualified tuition and related expenses for eligible students attending an approved educational institution. It applies to undergraduate, graduate, and professional degree courses, as well as classes designed to develop or enhance job skills.

• Maximum credit: Up to $2,000 per tax return (not per student).
• Refundability: This is a nonrefundable credit.
• Requirements: You do not need to be pursuing a degree or be a full-time student to claim the LLC.

What is the premium tax credit?

The premium tax credit is a refundable credit for eligible taxpayers who buy health insurance through the Health Insurance Marketplace and meet other criteria.

How does it work?

You can choose to have some or all of the estimated credit paid in advance directly to your insurance company to lower your monthly premiums. This is known as advance payments of the premium tax credit (APTC).

What happens at tax time?

You must file Form 8962 to reconcile the amount of advance payments paid on your behalf with the actual credit amount you are eligible for based on your final yearly income. If you used more credit than you qualified for, you might have to pay the difference when you file your federal tax return. If you used less, you get the difference back. The IRS uses Form 8962 to figure your premium tax credit and reconcile it with any advance premium tax credit (APTC) paid during the year.

A fragment of the IRS Form 8962 displayed within pdfFiller’s intuitive online PDF editor.

The Marketplace requirement

HealthCare.gov explains that if you had Marketplace coverage at any point during 2025, you must file and reconcile your premium tax credit. You use Form 1095-A to complete Form 8962; if you used too much APTC, you may repay it, and if you used too little, you may claim the difference as a credit. HealthCare.gov also notes that returns can be rejected if Form 8962 is required and missing, and you may need to resubmit with Form 8962 or an explanation.

What energy credits are available for tax year 2025?

Energy credits are tax incentives for using energy-efficient and renewable energy solutions in your home or business. They can reduce your tax bill, making it cheaper to invest in clean energy. These credits are typically nonrefundable.

Energy-efficient home improvement credit

• Energy-efficient improvements made after Jan. 1, 2023 may qualify for a credit of up to $3,200, claimable through Dec. 31, 2025.
• Credit is nonrefundable and covers 30% of qualified expenses, with these annual caps:
  • $1,200 total (with item-specific limits).
  • $2,000 for heat pumps and related items.
• Starting in 2025, some items will require a Qualified Manufacturer Identification Number (QMID) on the tax return.

Residential clean energy credit (solar, battery storage, geothermal, and more)

• The Residential Clean Energy Credit offers a 30% credit on the cost of new, qualified clean energy property for your home.
• This credit applies to property installed between 2022 and Dec. 31, 2025.
• The credit is nonrefundable, but you can carry forward any unused amount to future tax years.

Clean vehicle tax credits

• The Clean Vehicle, Previously-Owned Clean Vehicle, and Commercial Clean Vehicle Credits won’t apply to vehicles acquired after September 30, 2025.
• To qualify, you must acquire the vehicle by this date, including signing a binding contract and making a payment.
• “Placed in service” generally means when you take possession of the vehicle.

How does the adoption credit work?

The Adoption Credit helps cover reasonable and necessary adoption fees, court costs, and attorney fees. For tax year 2025, the IRS instructions for Form 8839 state the maximum credit is $17,280 per eligible child and that the credit phases out based on modified adjusted gross income.

For 2025, up to $5,000 of the adoption credit may be refundable. According to IRS instructions, the credit begins to phase out at a MAGI of $259,190 and is fully phased out at $299,190.

This is a nonrefundable credit, but you can carry it forward for up to five years if your tax liability is not high enough to use the full credit in one year.

Critical details for claiming credits

Refundable vs. nonrefundable credits

Understanding the difference between refundable and nonrefundable credits is crucial, as the type of credits you claim will directly impact your total tax refund.

• Refundable Tax Credit: This type of credit can result in a cash refund, even if you owe no federal income tax for the year (like the Earned Income Tax Credit and the Additional Child Tax Credit).
• Nonrefundable Credit: This credit can lower your tax bill to zero, but you won’t get any money back as a refund (like the Lifetime Learning Credit and the Adoption Credit). They are most valuable to people with a higher tax bill, offering less benefit to low-income families who don’t owe much tax.

How do income phase-outs work?

Most tax credits are aimed at low- to middle-income taxpayers, so Congress sets income limits. As income increases, the credit phases out:

• Earnings threshold: When your Modified Adjusted Gross Income (MAGI) reaches a certain level, the credit starts to decrease.
• Phase-out rate: The credit reduces at a set rate, such as $50 for every $1,000 over the limit.
• Married couples: Joint filers usually have higher phase-out thresholds to reflect combined income.

It is crucial to check the specific phase-out limits for the tax year you are filing, as these numbers are often adjusted for inflation beginning each year.

How do I claim my tax credits?

Claiming tax credits requires precision. Missing a form or calculating a number incorrectly can delay your refund or trigger an IRS audit.

1. Gather your documents: You will need W-2s, 1099s, and proof of expenses (like tuition statements or childcare receipts). A practical checklist:

• Dependents: names, SSNs, dates of birth, and proof of residency where relevant
• Dependent care: provider name, address, and SSN/EIN
• Education: Form 1098-T
• Marketplace: Form 1095-A
• Adoption: qualified adoption expense records

2. Verify eligibility: Ensure you meet all requirements, such as residency in the U.S. and that dependents have valid Social Security numbers.

3. Use the right forms. Claiming each credit requires a specific IRS form. Always check with the IRS for the latest instructions on how to prepare and file them correctly.

Summary of tax credits

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Conclusion

Tax credits can lower your federal income tax bill, and some are refundable, meaning you might get a refund even if you don’t owe any tax. The amount you can claim depends on your eligibility, income, and whether the credit is refundable. To get the full credit, you need the right forms, accurate information, and complete documentation.

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Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Always consult with a qualified tax professional regarding your specific situation.