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Credits

Taxpayers can reduce their income tax liability by claiming the benefit of certain tax credits. Each dollar of tax credit offsets a dollar of tax liability. The following are a few of the available tax credits.

Certain low to moderate income households may claim an Earned Income Credit. The maximum Earned Income Credit for 2012 was $5,891 for taxpayers with three or more qualifying children. In order to qualify for the credit, taxpayers must have adjusted gross income of less than $50,270. The earned income credit is a refundable credit.

The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.

The Hope Scholarship credit (American Opportunity Tax Credit) is equal to 100% of the amount of qualified tuition and related expenses not in excess of $2,000, plus 25% of those expenses that exceed $2,000 but do not exceed $4,000. The maximum credit for 2012 is $2,500. For tax years beginning in 2012, this credit begins to phase out for single individuals whose modified adjusted gross income (MAGI) exceeds $80,000 and at $160,000 for married couples filing joint returns.

Effective for tax years beginning after Dec. 1, 1997, taxpayers who have qualifying children for whom the taxpayer may claim a dependency exemption and who are less than 17 years old as of the close of the tax year are entitled to the child tax credit. The amount of the credit for 2012 was $1,000. The child credit begins to phase out when AGI reaches $110,000 for joint filers and $75,000 for singles.


Information Please® Database, © 2007 Pearson Education, Inc. All rights reserved.

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