With the tax season officially coming to a close for the 2024/2025 fiscal year, many people are currently awaiting their tax credits and refunds to be distributed by the IRS. While many tax credits are well known, such as the Child Tax Credit and the Additional Child Tax Credit, others are not taken advantage of by taxpayers. Not taking advantage of tax credits that you are entitled to can mean that you end up overpaying the IRS. It is important to check and research which tax credits you may qualify for to reduce your tax liability.
Tac credits: Helping to reduce your tax liability
Tax credits are particularly important for individuals from low- and middle-income backgrounds. By offering targeted tax liability relief for eligible individuals, they can encourage individuals to to take action and engage in activities which benefit society as a whole. For example, the Energy Efficient Home Improvement Tax Credit encourages individuals to upgrade their homes to support new advanced and energy efficient home improvements.
Refundable tax credits such as the Child Tax Credit also serve as upliftment and social programs from the federal government to help ensure that families are supported amidst expenses associated with child care. Further, it stimulates economic activity by paying taxpayers back as well as serve as flexible measures to respond to sudden economic changes, such as the COVID-19 Recovery Rebate credits.
3 tax credits people rarely claim
While some tax credits are well known, others are rarely utilized by taxpayers. This is usually due to a lack of awareness, as well as the fact that tax laws can sometimes change regularly. Other times, eligibility criteria can be quite complex, meaning that eligible taxpayers may actually miss that they do qualify for a tax credit. The following tax credits are often underutilized by taxpayers:
- The Retirement Savings Contribution Credit
- Child and Dependent Care Credit
- Tax Credit for Other Dependents
The Retirement Savings Contribution Credit is intended to encourage taxpayers to be contributing to savings and retirement accounts by reducing your tax liability by 10%,20% or 50% of what your retirement contributions are. The Child and Dependent Care Credit is targeted at parents who need to pay for child care for their children due to needing to work. It can be equal to as much as 35% of what your child care expenses are, depending on your income level. The Tax Credit for Other Dependent aims to target individuals who do not qualify for the Child Tax Credit, but who do still have dependents they are supporting.
Can you still claim tax credits now that the deadline has passed?
The deadline to file and pay your taxes was April 15. Unless you applied for and received an extension to file your taxes, you will be penalized if you have not filed your taxes. While you can still claim your credits even if you missed the deadline, you must remember that you will have to pay a “Failure to File” penalty due to not filing your taxes on time.
The IRS actively encourages individuals to file their taxes as soon as possible, even if they have missed the deadline. It is a federal requirement that you file your taxes, and failure to do so can get you in serious trouble with the law. However, communication is key, and ensuring that you are in contact with the IRS as soon as possible if you have missed the deadline will help you to have the lowest amounts of penalties and interest you will need to be liable to pay. Essentially, the IRS wants to help taxpayers stay compliant, and filing, whether you are late or not, is the first important step.
