While getting a tax refund check is generally more fun than having to write a check to the Internal Revenue Service for taxes due when April 15 rolls around, in most cases you only get a refund if you overpaid your taxes during the year. It is possible to get back more than you paid in if you qualify for a refundable tax credit.
Exemptions and deductions reduce the amount of your taxable income. For example, if you are married and file a joint return, you can claim a personal exemption for yourself, your spouse and your dependents. Each exemption reduces your taxable income by $3,800 for the 2012 tax year. You can also claim the standard deduction, which reduces your taxable income by up to an additional $11,900. Tax credits are more valuable than exemptions and deductions because they reduce the amount of your taxes on a dollar-for-dollar basis. Most tax credits will only reduce your tax obligation to as little as $0. Some tax credits, called refundable credits, can reduce your tax obligation to $0 and pay any excess credit back to you in the form of a tax refund.
Earned Income Credit
One of the largest of the refundable tax credits is the earned income tax credit, or EITC. The EITC is based on a combination of your earned income and the number of your dependent children. The EITC could be worth up to $5,891 for the 2012 tax year if you have at least three qualifying children. You might be eligible for the refundable EITC even if you don't have children if your adjusted gross income is less than $13,980, or $19,190 if you are married and file a joint return.
Higher education is expensive. As of 2012, the American opportunity tax credit can help lighten the load a bit. This partially-refundable tax credit renamed and expanded the benefits offered by the Hope scholarship credit. The credit covers up to $2,500 per year of qualifying education expenses, including tuition, fees and course materials, for up to four years of college. The first 40 percent of the credit, up to $1,000, is refundable so you could get a refund even if you didn't owe any taxes.
Child Tax Credit
If you have a qualifying child who is younger than 17 as of the end of the tax year, you may qualify for the child tax credit. The maximum credit for the 2012 tax year was $1,000, but the amount could be reduced based on your income. While the child tax credit is not a refundable credit, if you are eligible for the credit but receive less than the full amount, you might qualify for the additional child tax credit which is refundable. The additional child tax credit could give you a refund, even if you don't owe any taxes.
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