December 9, 2025
Tax credits are a great way to reduce your overall tax liability and can provide significant financial relief. Among the many available, there are several key personal tax credits that can make a big difference in your tax return. In this post, we’ll explore four of the most common and valuable personal tax credits: the Retirement Savings Contribution Credit, Education credits, Child and dependent care tax credit, and Child Tax Credit.
The Retirement Savings Contribution Credit, often referred to as the Saver’s Credit, is a nonrefundable tax credit designed to encourage lower-to-moderate-income taxpayers to save for retirement. If you contribute to retirement accounts like a 401(k), Roth IRA, or traditional IRA, you could be eligible for a credit that can reduce your tax liability.
How it Works:
This credit is based on your contributions to eligible retirement accounts, with the amount you can claim ranging from 10% to 50% of your contribution, depending on your income. For example, if you contribute $2,000 and qualify for the highest percentage (50%), you could get a $1,000 tax credit. The credit is available for up to $1,000 for individuals and $2,000 for married couples filing jointly.
Eligibility:
To qualify, you must:
If you qualify, this credit is a great way to reduce your tax liability while also bolstering your retirement savings.
The American Opportunity Credit is specifically geared toward undergraduate students in their first four years of higher education. This credit can provide up to $2,500 per eligible student per year.
How it Works:
Eligibility:
To qualify, the student must:
The AOC is a powerful tool for traditional students pursuing a full-time undergraduate degree and can offer meaningful tax relief during those initial college years. Additionally, the refundable portion of the credit can offer a significant financial benefit.
The Lifetime Learning Credit offers more flexibility and is available for a broader range of education levels, including graduate programs, professional development courses, or even a single course taken to acquire or improve job skills.
How it Works:
Eligibility:
To qualify, the student must:
Income phase-outs apply to higher earners and can reduce or eliminate education credits based on your Modified Adjusted Gross Income (MAGI). For both the American Opportunity Credit and the Lifetime Learning Credit, the credit begins to phase out at $80,000 for single filers and $160,000 for married couples filing jointly. Once your MAGI reaches $90,000 (single) or $180,000 (married filing jointly), the credits are completely phased out. Taxpayers who are married but file separately are not eligible for either credit.
The Child and Dependent Care Tax Credit helps working families offset the cost of care for children under age 13 or dependents who are physically or mentally unable to care for themselves.
How it Works:
This credit allows taxpayers to claim a percentage of eligible care expenses—up to $3,000 for one qualifying individual or $6,000 for two or more. The credit ranges from 20% to 35% of those expenses, depending on the taxpayer’s income.
Eligibility:
Key requirements include:
The value of the Child and Dependent Care Tax Credit is directly affected by the taxpayer’s income level. For tax years before 2026, taxpayers with an Adjusted Gross Income (AGI) of $15,000 or less can claim up to 35% of qualifying expenses. This percentage gradually decreases by 1% for every $2,000 of additional income (or part thereof) until it reaches 20% for those earning over $43,000. There is no complete phase-out; the credit remains available at a reduced rate for higher earners. For tax years beginning after 2025, the maximum credit rate increases to 50%. This rate is reduced—but not below 35%—by one percentage point for each $2,000 of AGI over $15,000. For higher-income taxpayers, the credit is reduced further—but not below 20%—by one percentage point for each $2,000 ($4,000 if filing jointly) of AGI over $75,000 ($150,000 if filing jointly).
Child Tax Credit
The Child Tax Credit (CTC) is one of the most widely known and beneficial tax credits for parents and guardians of qualifying children. This credit helps offset the costs of raising children and can provide significant relief.
How it Works:
For each qualifying child under the age of 17, taxpayers can claim a credit of up to $2,200. If you don’t owe enough taxes to use the full credit, part of the credit may be refundable. Additionally, there’s a $500 credit available for other dependents who do not meet the criteria for the Child Tax Credit.
Eligibility:
To qualify, a child must:
Income phase-outs apply to high-income earners, reducing or eliminating the credit based on your MAGI. For single filers, the credit begins to phase out at $200,000 in MAGI, and $400,000 for married couples filing jointly.
Whether you’re saving for retirement, investing in your or your dependents’ education, or raising children, these tax credits provide valuable opportunities to reduce your tax liability. By understanding the eligibility requirements and how each credit works, you can maximize the potential savings and improve your financial situation. Tax credits are designed to encourage specific behaviors like saving for retirement, obtaining an education, and supporting families. By taking advantage of these credits, you can make a positive impact on both your finances and your community.
For more guidance on this topic, please contact us today. Larson and Company has developed a suite of tax services specifically to serve the needs of individuals and companies.