Lower Your Taxes With These Five Often-Missed Credits

Each year millions of Americans overlook billions of dollars of federal tax credits that can cut their tax bill and increase their refund come filing time.

These credits can be claimed for a variety of purposes including education, child care, health insurance and retirement savings. But tax experts say these credits often aren’t claimed because taxpayers don’t know they exist or because they are confused about eligibility.

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Tax credits offer a dollar-for-dollar reduction in one’s tax liability, unlike tax deductions that lower one’s taxable income and are based on an individual’s tax rate. For example, if you owe the Internal Revenue Service $1,000 at tax time and you had a $1,000 tax credit, you would owe Uncle Sam nothing. But if you had a $1,000 tax deduction and you were a single taxpayer in the 10% federal tax bracket, you would have $100 in savings.

Keep in mind not all tax credits are created equal, says Andy Phillips, vice president of the Tax Institute at H&R Block. There are three main types: refundable, where you get the full amount of the refund even if you don’t owe taxes; nonrefundable, where the credit can reduce your tax liability to zero but if it is more than the tax you owe you forfeit the remaining amount (unless the credit allows for a carryforward of the unused amount); and partially refundable, where the credit can reduce your tax liability to zero and a portion of the remaining amount may be returned to you as a refund.

Here are five often-overlooked tax credits for the 2025 tax year.

1. Retirement savings contributions credit

Many people don’t know they may be able to take a nonrefundable tax credit for making eligible contributions to their individual retirement account, 401(k), 403(b) or other employer-sponsored retirement plans. ABLE savings accounts for eligible individuals with disabilities also qualify for this credit.

The retirement savings contribution credit can be as high as 50% of the annual savings contribution with a limit of $2,000—depending on your income. In tax year 2025, the maximum credit is $1,000 for single filers or individuals with an annual adjusted gross income up to $39,500, and $2,000 for married couples filing jointly with an annual income of up to $79,000 if both make contributions.

There are some caveats. Rollover contributions don’t qualify for the credit, and any recent distributions you received from a retirement plan, IRA or ABLE account will reduce your credit amount. In addition, you can’t claim the credit if you were claimed as a dependent on another person’s return or you’re a full-time student over 18.

Filing Tip: Use the 2025 Form 8880, Credit for Qualified Retirement Contributions, to calculate and claim your credit and attach it to your 1040 or 1040-SR tax return with Schedule 3.

2. Child and dependent care tax credit

According to tax professionals, many people don’t apply for this credit either because they don’t realize expenses like summer day camp qualify or they assume dependent-care benefits from work disqualifies them. But they’re missing out. 

The IRS offers this nonrefundable tax credit for eligible taxpayers who need child care—including after-school care and summer camps—so they can work or look for work. It can also be claimed to pay for the care of an older dependent who has lived with you for more than half the year.

To qualify, the taxpayer’s child must be under age 13 at the end of the tax year and claimed as a dependent. There is no age limit for this credit for individuals who are physically or mentally incapable of self-care but there are eligibility requirements for adults.

The credit is calculated based on income and a percentage of the expenses incurred. For the 2025 tax year, the maximum expenses eligible for the credit are $3,000 for one dependent, and $6,000 for two or more. The credit can be worth between 20% and 50% of those amounts, depending on your income. Eligibility requirements are complicated—especially for divorced or separated couples—so review the IRS rules.

“The good news is that there are no income restrictions to qualify, although the higher the income the lower the credit,” says Tom O’Saben, director of tax content and government relations at the National Association of Tax Professionals.

If you pay these expenses through a Dependent Care Flexible Spending Account, you still may be eligible for a partial credit if you spend more than $5,000.

Filing Tip: Use Form 2441 to determine eligibility and calculate your credit and attach it to your 1040 or 1040-SR tax return.

3. Lifetime learning credit

Anyone paying tuition, books or fees for graduate school, trade school or other postsecondary courses to improve job skills or for continuing education may be eligible for this nonrefundable tax credit. Yet it is often overlooked because people confuse it with the American Opportunity Tax Credit, which applies to the first four years of higher education.

The maximum lifetime learning credit is 20% of up to $10,000 in eligible costs. Income limits apply for this tax break based on your modified adjusted gross income. You can receive the full credit for tax year 2025 if your modified adjusted gross income is up to $80,000 as a single filer, up to $160,000 if you are married and filing jointly. The credit is gradually phased out at income between $80,000 and $90,000 single and between $160,000 and $180,000 married filing jointly.  

“A student can claim this credit themselves, but he or she cannot claim it if someone like their parent claims them as a dependent on their tax return,” says Lisa Greene-Lewis, a certified public accountant and tax expert at TurboTax. “Individuals filing as married filing separately cannot claim the credit either.”

Filing Tip: To claim this credit, enter the figures from the Form 1098-T you receive from your educational institution that shows the tuition paid on Form 8863 and attach it to your tax return.

4. Energy-efficient home improvement credit

Homeowners who have made or will make energy audits or energy-saving improvements through year-end—including exterior doors and windows, central air conditioning, furnaces, heat pumps, insulation and solar panels—can apply for this nonrefundable credit that’s expiring on Dec. 31.

According to tax experts, many people don’t realize this credit is still available this year and may want to still take advantage of the benefit.

The credit is up to 30% of qualifying expenses on an existing home in the U.S., and in most cases your primary residence. If you use the home solely for business purposes you can’t claim the credit. Keep in mind, most purchases must be made through a qualified manufacturer registered with the IRS.

The maximum credit you can claim is $3,200. But the amount you receive depends on the specific type of improvement you make. For example, you can receive a credit of $150 for a home energy audit and up to $600 for exterior windows and skylights and water heaters.

Filing Tip: Keep receipts for your records that include the manufacturer’s Qualified Manufacturer Identification Number. Use Form 5695 to apply for credits and attach it to your tax return.

5. Earned-income tax credit

This refundable tax credit is meant to help low- and moderate-income working individuals and families, yet 1 in 5 eligible taxpayers fails to claim it, the IRS reports. To qualify for the EITC, as the credit is commonly called, a filer must have worked in 2025 and his or her earned income must not exceed specific income thresholds set by the IRS.

The amount of the credit you receive depends on your earned income, filing status and number of qualifying children. The IRS has tests to determine who is a qualifying child based on age, relationship, residency and filing status.

For the 2025 tax year, the EITC hits a maximum of $649 for filers with no children, $4,328 for those with one qualifying child, $7,152 for those with two qualifying children, and $8,046 for those low-wage earners (annual income can be up to $61,555 for single filers, and $68,675 if married filing jointly) with three or more qualifying children.

The EITC is available as long as you have earned income that meets the annual threshold. For the 2025 tax year, annual income can be up to $61,555 for single filers, and $68,675 if married filing jointly. Additionally, your investment income must be $11,950 or less, you must have a valid Social Security number, and be a U.S. citizen or resident alien. 

If you are filing married filing separately you may not be eligible unless you meet a narrow exception for certain separated spouses.

Filing Tip: You must file your 1040 U.S. individual return form, or form 1040-SR if you are a senior. If you are claiming the credit for a qualifying child you must also attach Schedule EIC with your return. 

Lori Ioannou is a writer in New York. She can be reached at reports@wsj.com.