What are the types of Tax credit?

Tax credit is the reduction of your taxes or rather the reduction of your tax liability. It is the item that reduces the actual tax of an individual which is to be paid by him. It is different from tax deduction as tax deduction reduces only the taxable income. Your tax credit does not depend on the rate of your taxes. It is the tax benefit offered by the Internal Revenue System or IRS and the state and local governments. There are various kinds of tax credit.

Different types of tax credit

• Some of the different types of tax credit are:Child tax credit – Child tax credit provides for a number of benefits. It offers you extra money to support your children. Anybody who is eligible to file a claim about a dependent child is eligible to get child tax credit. The child tax credit can be worth up to $1000 per child but your child must be below 17 years of age and you will have to be related to him/her by your marriage, blood or any foster arrangements. However, in case of child adoption too, you will be able to enjoy the tax benefits. Apart from the above, your child will also have to be a US citizen or resident alien.

• Foreign tax credit – You may be eligible to claim your foreign tax credit if you pay taxes for other foreign countries. However, you won’t be able to claim tax credits for those taxes which have been excluded from your US taxable income.

• Energy tax credit – You will be able to enjoy benefits of the energy tax credits if you have made improvements to your primary home in recent years. The home developments increase the energy efficiency of your home and therefore, you will be able to claim the residential energy tax credits. There are mainly 2 types of energy tax credits that you may be allowed to claim. These are the ‘Residential Energy Efficient Property Credit’ and the ‘Nonbusiness Energy Property Credit’.

• Elderly or disabled tax credit – You can also claim elderly or disabled tax credit if you are in the age group of 65 or more. You may also be bale to enjoy the benefits of elderly or disabled tax credit if you are a retiree or if you are on a total or permanent disability. But, to be eligible to get the disabled tax credit benefit, you are supposed to have a taxable disability income.

Other than this there are some other types of tax credit too and these are the education tax credits, earned income tax credits, lifetime learning credit and so on.