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Non-Refundable Personal Tax Credits


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This article is meant to provide a summary resource for all applicable non-refundable personal credits available to taxpayers for the 2018 tax reporting period. A non-refundable tax credit means the application of any of these personal credits cannot reduce an individual's tax liability to less than zero, which would result in a refund to the taxpayer.


Nonrefundable Personal Tax Credits


1) Child & Dependent Care Credit (IRS Topic No. 602)


An individual taxpayer may claim this credit for a portion of qualifying dependent care expenses paid during the year to allow the taxpayer (and their spouse if filing jointly) to be gainfully employed during the tax year.


Qualifying individuals for the taxpayer include children under the age of 13, dependents living with the taxpayer that are physically or mentally incapable of supporting their selves, and the taxpayer's spouse if he/she is unable to physically or mentally support their self.


The calculation for the credit is based on qualifying related expenses and and it calculated using a percentage (20%-35%) based on the taxpayer's adjusted gross income. The maximum credit that can be taken is $1,050 for one qualifying child or dependent or $2,100 for two or more qualifying children and/or dependents.


The Child & Dependent Care Credit is computed on Form 2441.


2) Elderly or Disabled Credit (Publication 524)


An individual taxpayer may claim this credit if he/she is either 65 by the close of the tax year or under 65 but retired and permanently and totally disabled upon retirement. Married individuals generally must file a joint return to claim this credit unless they lived separate for the entire tax year.


The credit is 15% of specified initial amounts and is reduced by items such as non-taxable pensions, annuities, or disability payments. No reduction is made for such benefits made through a Department of Veteran Affairs program.


A person is considered permanently and totally disabled if they are unable to partake in any substantially gainful activity due to medically determined physical or mental incapacity that is expected to result in death or last for at least 12 continuous months. Such medical and physical impairments must be proved by a physician's letter.


The Elderly or Disabled Credit is computed on Schedule R of Form 1040.


3) Education Credit #1 - American Opportunity Tax Credit (AOTC) (IRS - AOTC)


An individual taxpayer may deduct 100% of the first $2,000 of qualified tuition and related expenses paid by the taxpayer during the tax year plus 25% of the next $2,000 in such expenses paid. The maximum credit a taxpayer may take in one year is $2,500.


This credit phases out for individuals with a modified adjusted gross income between $80,000 and $90,000 and married filing jointly filers with a modified adjusted gross income between $160,000 and $180,000.


An eligible student for this tax credit must meet the following requirements:

- the AOTC has not been claimed on the student in the previous four tax reporting years

- has not completed the first four years of post-secondary education by the beginning of the tax year (they still qualify if they graduated in May of the tax year)

- is enrolled at least half-time in an academic program during the tax year or the first three months of the following year

- has not been convicted of a federal or state felony offense for possession of distribution of a controlled substance as of the end of the tax year.


The AOTC is computed on Form 8863.


4) Education Credit #2 - Lifetime Learning Credit (IRS - LLC)


The Lifetime Learning Credit is equal to 20% of qualified tuition and related expenses paid by the individual taxpayer during the tax year on the first $10,000 of tuition. This calculation is done of a per taxpayer basis and not a per student basis.


The tuition and related expenses of a student qualify if they are enrolled in one or more courses at an eligible education institution.


The phase out for this credit begins at $57,000/$114,000 modified adjusted gross income levels and is completed phased out at the $67,000/$134,000 modified adjusted gross income levels.


An individual taxpayer may utilize both the American Opportunity Tax Credit and the Lifetime Learning Tax Credit in the same year. Duplicate qualifying expenses may not be used for both credits.


The LLC is also computed on Form 8863.


5) Retirement Savings Contributions Credit (IRS - Saver's Credit)


An eligible low-income individual taxpayer may claim a tax credit for contributions and elective deferrals to certain qualifying retirement plans and individual retirement accounts (IRAs). The eligible taxpayer must be at least 18 years old at the end of the tax year, not claimed as a dependent by another taxpayer, and not a full time student.


The maximum credit that may be taken is $1,000 during the tax year and is determined based on the adjusted gross income of the tax payer and their qualifying retirement plan contributions.


The percentage of the qualifying contributions that result in the tax credit is dependent on adjusted gross income and phases out completely at the $31,500(single/married filing separately)/$47,250(head of household)/$63,000(married filing jointly) thresholds.


This credit is computed on Form 8880.


6) Child Tax Credit (Publication 972)


An individual taxpayer may claim a child tax credit on any qualifying child under the age of 17 that they support during the tax year and who they are able to claim as a dependent on their tax return. They may also claim a partial child tax credit for any other qualifying dependent.


The maximum credit amounts are as follows:

- $2,000 for each qualifying child under the age of 17

- $500 for all other qualifying children and each qualifying relative.


The child tax credit is phased out or reduced once the taxpayer reaches the threshold modified adjusted gross income levels of $200,000/$400,000.


In certain cases, a portion of the child tax credit may be refundable in the form of the Additional Child Tax Credit. See Publication 972 for more information.


The child tax credit is inserted directly into the Form 1040.


7) Mortgage Interest Credit (About Form 8396)


An individual taxpayer that receives a qualified mortgage credit certificate (MCC) from a state or local government may deduct a portion of their mortgage interest as a credit.


The maximum credit is $2,000 and any claimed interest to calculate this credit must be reduced from the mortgage interest deduction on Schedule A.


This credit is computed on Form 8396.


8) Adoption Credit (Topic No. 607)


An individual taxpayer may claim a credit on qualified adoption related expenses paid for each eligible child. The current maximum annual credit amount is $13,810.


The credit is computed on Form 8839.


9) First-Time Home-Buyer Credit for the District of Columbia


See About Form 8859, Carryforward of the District of Columbia First-Time Homebuyer Credit for more information about this location-specific tax credit.


10) Alternative Minimum Tax Credit (Instructions for Form 8801)


An individual taxpayer is permitted to take a tax credit from some or all of the alternative minimum tax they may have paid (note: most individuals do not need to pay alternative minimum tax)in previous tax years.


This credit is calculated by reducing the taxpayers AMT liability by certain adjustments related to the standard deduction, personal exemptions, medical expenses, and other applicable tax items.


This credit is computed on Form 8801.


Contact Cloonan & Associates for any tax issues or questions you are currently experiencing.