Tax Credits
Tax credits for parents
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Child tax credit:
The 2025 reconciliation act, or the One Big Beautiful Bill Act (OBBBA), differed from these recent expansion efforts. It permanently increased the maximum credit amount to $2,200 per child and indexed it for inflation. -
Earned income credit:
For 2025, the maximum Earned Income Tax Credit (EITC) amount available is $8,046 for married taxpayers filing jointly who have three or more qualifying children, it was $7,830 in 2024. Phaseouts apply. -
Child and dependent care tax credit:
Depending on income, taxpayers can get a credit worth up to 35% of their qualifying childcare expenses. At minimum, it’s 20% of those expenses. For 2025, the maximum eligible expense for this credit is $3,000 for one qualifying person and $6,000 for two or more. -
Adoption tax credit:
For 2025, the adoption credit for adopting a child with special needs is $17,280, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $17,280 – up from $16,810 in 2024. The available adoption credit begins to phase out for taxpayers with modified adjusted gross income (MAGI) in excess of $259,190; it’s completely phased out at $299,190 or more. -
Other Dependents Credit:
If you do not meet the criteria to claim the Child Tax Credit or Additional Child Tax Credit, you may qualify for the Credit for Other Dependents (ODC) for your child or dependent. They must: Be claimed as a dependent on your tax return.
- Be a U.S. citizen, U.S. national, or U.S. resident alien.
- Have a Social Security number, Individual Taxpayer Identification Number (ITIN), or Adoption Taxpayer Identification Number (ATIN).
The maximum credit amount is $500 for each dependent and begins to decrease in value if your adjusted gross income exceeds $200,000 ($400,000 for married filing jointly).
Education tax credits
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American opportunity credit:
Are you seeking a higher education or are the parent college-aged students? If so, you may qualify for a credit of up to $2,500 per qualifying student. The credit may cover 100% of the first $2,000 you spend on qualified education expenses per student and 25% of the following $2,000 you spend. -
Lifetime learning credit:
This is another credit for those seeking a higher education or those who are paying for another student’s education. The credit may cover up to $2,000 in qualified education expenses. https://www.irs.gov/credits-deductions/individuals/education-credits-aotc-and-llc
Energy efficient upgrade tax credits
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Electric vehicle tax credit:
The federal electric vehicle (EV) tax credits for new and used vehicles expired on September 30, 2025, due to the “One Big Beautiful Bill Act” passed in July 2025. Credits are no longer available for vehicles acquired after that date, although a “binding contract” loophole exists for purchases initiated before the deadline. -
Residential energy tax credit:
In 2025, homeowners can claim two federal energy tax credits. Both expire on December 31, 2025, and are claimed using Form 5695.
Energy Efficient Home Improvement Credit (Section 25C)
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Credit:
30% of eligible costs, up to $3,200 per year -
Limits:
$1,200 annual cap for most improvements
$2,000 for heat pumps, heat pump water heaters, and biomass systems (separate cap)
$600 per item for A/C, furnaces, water heaters; $600 total for windows/skylights
$250 per exterior door ($500 total)
$150 for a home energy audit -
Requirements:
Primary U.S. residence
Must meet energy efficiency standards
QMID required for most 2025 installations
Residential Clean Energy Credit (Section 25D)
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Credit:
30% of total cost, including labor -
No annual or lifetime limit:
(except fuel cells) -
Qualifying property:
Solar electric and solar water heating systems
Geothermal heat pumps
Small wind turbines
Battery storage (3 kWh or more)
Fuel cells (limited to $500 per half-kW) -
Requirements:
U.S. home (main or second home; fuel cells require main home)
Installation must be completed by Dec 31, 2025
Other general tax credits
Retirement savings contributions credit (saver’s credit):
The credit could be worth between 10% and 50% of the contributions you made to a qualifying retirement account – like a 401(k) or IRA – in 2025, depending on your income.
| Amount of the Credit | Single Filers* | Head of Household | Joint Filers |
|---|---|---|---|
| 50% of contribution | $23,750 or less | $35,625 or less | $47,000 or less |
| 20% of contribution | $23,751 – $25,500 | $35,626 – $38,250 | $47,001 – $51,000 |
| 10% of contribution | $25,501 – $39,500 | $38,251 – $59,250 | $51,001 – $79,000 |
| Zero credit | $39,501 or more | $59,251 or more | $79,001 or more |
Individual Retirement Account Rules
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Contribution limit (2025):
About $7,000, plus $1,000 catch-up if age 50 or older. -
Eligibility:
You must have earned income to contribute. -
Traditional IRA:
Contributions may be tax-deductible; growth is tax-deferred; withdrawals are taxable. -
Roth IRA:
Contributions are not deductible; qualified withdrawals are tax-free; income limits may restrict contributions. -
Early withdrawals:
Generally subject to income tax plus a 10% penalty before age 59½, with several exceptions. -
RMDs:
Required for Traditional IRAs starting at age 73; no RMDs for Roth IRAs during the owner’s lifetime. -
Common exceptions:
Penalty-free withdrawals for education, first-time home purchase, birth/adoption (up to $5,000), and certain medical expenses.
Special IRAs
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SEP & SIMPLE IRAs:
Employer plans for small businesses. -
Traditional IRA:
Contributions may be tax-deductible; growth is tax-deferred; withdrawals are taxable. -
Bottom line:
Traditional IRAs offer potential upfront tax deductions but taxable withdrawals and RMDs, while Roth IRAs offer tax-free withdrawals with no RMDs for the original owner.
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