Tax Credits You Didn't Know You Deserved

Tax season tends to bring a mix of anxiety, confusion, and dread for most Americans. Between complicated forms, changing laws, and the fear of making a mistake, many people rush through their tax returns, potentially leaving thousands of dollars on the table. What most taxpayers don't realize is that the tax code includes numerous credits and deductions specifically designed to help individuals and families keep more of their hard-earned money.

Unlike tax deductions that simply reduce your taxable income, tax credits provide a dollar-for-dollar reduction of your tax liability—making them significantly more valuable. In this article, we'll uncover often-overlooked tax credits that could dramatically lower your tax bill or even result in a larger refund.

The Difference Between Tax Credits and Deductions

Before diving into specific credits, it's essential to understand the crucial difference between tax credits and tax deductions:

Now that you understand the power of tax credits, let's explore some valuable credits you might qualify for but may not know about.

Credits for Families and Dependents

Child and Dependent Care Credit

Many working parents know about the Child Tax Credit, but fewer take full advantage of the Child and Dependent Care Credit. This credit helps offset the cost of care for children under 13 or dependents who cannot care for themselves while you work or look for employment.

For 2025, you can claim up to $3,000 in care expenses for one qualifying individual or $6,000 for two or more. Depending on your income, the credit can be worth between 20-35% of these expenses. This means a potential credit of $600-$1,050 for one dependent or $1,200-$2,100 for multiple dependents.

Credit for Other Dependents

While the Child Tax Credit gets most of the attention, many taxpayers miss the Credit for Other Dependents (ODC). This $500 non-refundable credit applies to qualifying dependents who don't meet the criteria for the Child Tax Credit, including:

• Children 17 or older
• Elderly parents or relatives you support
• Adult children with disabilities
• Other relatives who meet dependency requirements

With multigenerational households becoming more common, this credit can provide meaningful tax relief for families supporting older children or aging parents.

Education-Related Tax Credits

American Opportunity Tax Credit (AOTC)

The AOTC is one of the most valuable education credits, worth up to $2,500 per eligible student for the first four years of higher education. What makes this credit especially powerful is that it's partially refundable—meaning you can receive up to $1,000 as a refund even if you don't owe any taxes.

To qualify, the student must be pursuing a degree or credential, enrolled at least half-time, and not have completed four years of higher education. Eligible expenses include tuition, required fees, and course materials.

Lifetime Learning Credit (LLC)

Unlike the AOTC, the Lifetime Learning Credit doesn't have limits on the number of years you can claim it. This makes it particularly valuable for graduate students, part-time students, and those taking courses to acquire or improve job skills.

The LLC is worth up to $2,000 per tax return (not per student) and covers 20% of the first $10,000 in qualified education expenses. While it's not refundable, it can significantly reduce your tax liability if you're pursuing ongoing education.

Work-Related Tax Credits

Earned Income Tax Credit (EITC)

The EITC is one of the most significant tax credits for low to moderate-income workers, yet the IRS estimates that about 20% of eligible taxpayers don't claim it. For 2025, this refundable credit could be worth up to $7,430 for families with three or more qualifying children.

What many people don't realize is that you don't need to have children to qualify. Workers without qualifying children who earn less than about $17,640 ($23,620 for married couples) may be eligible for a credit of up to $600. This is particularly valuable for younger workers (19+) and older adults (65+) with modest incomes.

Retirement Savings Contributions Credit (Saver's Credit)

This frequently overlooked credit rewards lower and middle-income taxpayers for saving for retirement. Depending on your income and filing status, you can claim a credit of 10%, 20%, or 50% of your contributions to qualifying retirement accounts, up to a maximum credit of $1,000 ($2,000 if married filing jointly).

Eligible retirement accounts include 401(k)s, 403(b)s, traditional and Roth IRAs, SIMPLE IRAs, and SARSEPs. The beautiful thing about the Saver's Credit is that it's available in addition to the regular tax benefits of these retirement accounts.

Homeowner Tax Credits

Residential Energy Efficient Property Credit

The federal government offers substantial tax credits for making energy-efficient improvements to your home. Through 2025, homeowners can claim a credit of up to 30% of the cost of qualifying energy-efficient improvements, including:

• Solar electric systems
• Solar water heaters
• Geothermal heat pumps
• Small wind turbines
• Fuel cell property
• Energy-efficient windows, doors, and skylights
• Heat pumps and heat pump water heaters
• Central air conditioning systems

This credit not only reduces your tax bill but also lowers your utility costs and increases your home's value—a triple win for your finances.

Mortgage Interest Credit

Different from the more common mortgage interest deduction, the Mortgage Interest Credit is designed specifically for lower-income homeowners who received a Mortgage Credit Certificate (MCC) through a state or local government program when they purchased their home.

This credit allows eligible homeowners to claim a tax credit for a percentage (typically 10-50%) of the mortgage interest they paid during the year, up to $2,000. What makes this particularly valuable is that you can claim both the credit and deduct the remaining mortgage interest on Schedule A if you itemize.

Healthcare-Related Tax Credits

Premium Tax Credit

If you purchase health insurance through the Health Insurance Marketplace, you may qualify for the Premium Tax Credit. This refundable credit helps offset the cost of your insurance premiums based on your household size and income.

Many people choose to have this credit paid in advance directly to their insurance provider, reducing their monthly premiums. However, if your income changes during the year, you may receive additional credit when filing your taxes or need to repay some of the advance payments.

Health Coverage Tax Credit (HCTC)

This credit is specifically for certain individuals who receive Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation. It covers 72.5% of qualified health insurance premiums and is fully refundable.

State and Local Tax Credits

Beyond federal tax credits, many states offer their own credits that are often overlooked. These can include:

• State-specific earned income tax credits (available in 30 states and DC)
• Property tax credits for seniors, veterans, or low-income homeowners
• Child and dependent care credits that supplement the federal credit
• Education credits specific to your state
• Historic preservation credits for renovating historic properties
• Renewable energy credits that may be more generous than federal incentives

Research the tax credits available in your state, or consult with a local tax professional who specializes in your state's tax laws.

How to Make Sure You Don't Miss Any Credits

Use Quality Tax Software

Most tax preparation software is designed to ask questions that help identify tax credits you might qualify for. However, the quality and thoroughness of these questions can vary significantly between programs. Premium versions often include more comprehensive assessments of potential tax credits.

Consult with a Tax Professional

While it may cost more upfront, working with a knowledgeable tax professional can often save you significantly more in the long run. They can identify credits and deductions you might miss when preparing your own taxes, especially if you have a complex financial situation.

Keep Detailed Records Year-Round

Many potential tax credits require documentation of expenses throughout the year. Create a system to track and store receipts and records related to:

• Educational expenses
• Childcare costs
• Energy-efficient home improvements
• Medical expenses
• Charitable donations
• Business expenses

Digital receipt tracking apps can make this process much more manageable and ensure you have everything you need at tax time.