If You Make Less Than $50,000, Don't Forget These 3 Tax Breaks
Tax breaks aren't just for the wealthy. The IRS has many tax benefits that are aimed at those of more modest means, but many people miss out without even realizing they could take advantage of opportunities to cut their tax bill in April. The following three tax breaks are tailor-made to give the biggest benefits to those who make less than $50,000, and they can make a big difference come tax time.
1. Earned Income Tax Credit
For those who work and have modest incomes, the Earned Income Tax Credit can provide one of the biggest tax credits available under current law. Exactly how much you can get depends on how much you make, what your filing status is, and whether you have any children. As you can see below, credits can provide several thousand dollars in some cases.
2. Child and Dependent Care Credit
Working families can also take advantage of another credit known as the Child and Dependent Care Credit. This credit is worth between 20% and 35% of expenses up to $3,000 in child care costs for one child, or $6,000 in expenses for two or more children. Your child must be aged 12 or younger, and married couples must file jointly and both have earned income from a job or self-owned business.
The size of the credit depends on income. The 35% maximum applies to those with incomes below $15,000. As income rises, the percentage declines gradually until bottoming out at 20% for those who make more than $43,000. With the maximum credit amounting to $2,100, the Child and Dependent Care Credit is relatively simple to take and potentially lucrative for taxpayers of modest means.
3. Savers Credit
Finally, the Retirement Savings Contributions Credit, better known as the Savers Credit, is a tax break aimed at those with modest incomes. It gives you a credit if you contribute to an IRA, 401(k), or other tax-favored retirement account. The amount of the credit ranges from 10% to 50% of the first $2,000 you put into the account, depending on income and filing status.
The chart below shows the income thresholds at which each part of the credit applies:
The Savers Credit saves its maximum payout for those with relatively low incomes. For instance, joint filers making $40,000 to $61,500 a year are eligible for the credit, but their maximum credit is just 10% of the first $2,000 in retirement savings, or $200. By contrast, if you file jointly and have adjusted gross income of less than $37,000, then you can take half of your contribution as a credit -- up to $1,000 if you contribute $2,000 or more. The net effect is essentially a government match of a retirement contribution, and it's something you should stretch to take advantage of if you can.
Many people think tax breaks only go to the rich. But these benefits are designed for ordinary Americans like you, and they can give you a big boost in what you get back from the IRS.
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