Lower-income families who do not pay income taxes might be eligible to claim refundable income tax credits. The IRS offers taxpayers two types of credits; nonrefundable and refundable. Nonrefundable income tax credits only reduce the amount of income tax that you owe the IRS. Refundable tax credits are credits that not only reduce the amount of tax you owe to the IRS but can increase the amount of your income tax refund.
Earned Income Credit
Verify whether you meet the income limits to claim the Earned Income Credit. As of the 2010 tax year, the income limit for a taxpayer without a qualifying child is $13,460 ($18,470 if married filing jointly), $35,535 ($40,545 if married filing jointly) for one child, $40,363 ($45,373 if married filing jointly) for two children and $43,352 ($48,362 for married filing jointly) for three children. The income limit is determined according to your adjusted gross income and not total income.
Determine the amount of your Earned Income Credit by comparing your adjusted gross income to the Earned Income Tax Credit Table in your tax form's instructions.
Enter the amount of your credit on the "Earned Income Credit" line of your tax form. This is line 41a of 2010 Form 1040A and line 64a of 2010 Form 1040. If you do not owe any tax, you will receive this amount as a refund. If you have a qualifying child, you must complete Schedule EIC and include it with your income tax return.
Making Work Pay Credit
Determine whether you are eligible to claim the Making Work Pay Credit. This credit is only available for the 2009 and 2010 tax years. For most taxpayers, the tax credit was applied throughout the tax year, by decreases in the amount of income tax withheld from your paycheck. If you did not have taxes withheld from your paycheck or are self-employed, you can claim this refundable credit on your income tax return.
Complete Schedule M to determine the amount of your credit.
Enter the amount of your credit from Schedule M to the "Making Work Pay Credit" line on your income tax form. This is line 40 of 2010 Form 1040A and line 63 of 2010 Form 1040.
Additional Child Tax Credit
Determine whether you qualify for the Additional Child Tax Credit. The Additional Child Tax Credit is a refundable credit that is available to people who have a child and did not receive the full amount of the Child Tax Credit. To qualify for the Additional Child Tax Credit, you must first qualify for the Child Tax Credit and your income must be limited to receive the entire amount. Check the amount of your Child Tax Credit on your tax form. If it is less than $1,000 (per qualifying child) you might qualify for the additional credit.
Complete Form 8812 to determine the amount of your Additional Child Tax Credit.
Enter this amount in the "Additional Child Tax Credit" line of your tax form. This is line 42 of 2010 Form 1040A and line 65 of 2010 Form 1040.
Determine whether you qualify for the Adoption Credit. As of the 2010 income tax year, the Adoption Credit is refundable. If you adopted a child, a portion of your costs will be refunded in your income tax refund.
Complete Form 8839 to determine the amount of your Adoption Credit.
Enter the amount from Form 8839 to Form 1040, line 71 and check the box labeled "8839."
A qualifying child is a child that is related to you by blood or marriage. The child must be under the age of 19 and younger than you or your spouse; under the age of 24, a student and younger than you or your spouse; or any age and permanently disabled. The child cannot file a joint income tax return and must have lived with your for more than half of the year.
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