A tax credit directly reduces the income tax a person owes, dollar‑for‑dollar. For example, if a taxpayer qualifies for a $1,000 credit, their tax bill can be reduced by $1,000, regardless of their tax bracket. Some credits are refundable, meaning if the credit exceeds the tax owed, the taxpayer may receive the difference as a refund. Others are non-refundable or partially refundable, which affects whether unused credit can generate cash back or only reduce tax to zero.
Core nonrefundable tax credit
IRS Issue Number Tax Tip 2026‑10 groups several key nonrefundable credits that many individuals may be able to use on their 2025 returns:
- Child Tax Credit (CTC)
The Child Tax Credit helps families with qualifying children under age 17 at the end of the tax year who meet relationship, residency, support, and be a U.S. citizen, U.S. National or a U.S. resident alien. For 2025, the maximum credit is up to $2,200 per qualifying child. The credit phases out at higher income levels based on long‑standing CTC phase‑out thresholds, so higher‑income clients may receive a reduced benefit. - Child and Dependent Care Credit
This credit helps taxpayers paid qualified expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work. A qualifying person generally is a dependent under the age of 13, a disabled spouse or dependent of any age who is incapable of self-care and who lives with you for more than half of the year. Taxpayers must have earned income (with some exceptions for a disabled or student spouse) and must provide the eligible care provider information (name, address, EIN or social security number) on their return. - Saver’s Credit
The Saver’s Credit rewards eligible taxpayers for contributing to retirement plans like IRAs, 401(k)s, and certain other qualified plans. The maximum credit is $1,000 ($2,000 if married filing jointly). The exact size of the Saver’s Credit depends on how much you contribute and your income level, as represented by your adjusted gross income (AGI) and filing status. For those married filing jointly the credit is phased out with an AGI of more than $79,000 and for single filers with an AGI of more than $39,500.
Refundable tax credits
Refundable credits are particularly valuable because they can create or increase a refund even when tax liability is low or zero:
- Premium Tax Credit
The Premium Tax Credit helps eligible individuals and families who purchase health coverage through the Health Insurance Marketplace pay their premiums. The credit amount is based on household income relative to the federal poverty line, family size, and the cost of benchmark plans in the taxpayer’s area. If you receive the benefit of advance payments of the premium tax credit to help pay your insurance premiums, you will be required to file Form 8962, Premium Tax Credit (PTC), with your tax return for the year of coverage. Use the information from Form 1095-A, Health Insurance Marketplace Statement, to complete the Form 8962 and reconcile your advance payments of the premium tax credit with the premium tax credit you are allowed on your tax return.
- Adoption Tax Credit
The Adoption Tax Credit helps offset qualified adoption expenses, such as adoption fees, court costs, attorney fees, and certain travel expenses. The credit is available to taxpayers who finalized an adoption in 2025 or started the adoption process before 2025. The maximum amount, for 2025, is $17,280 per eligible child. The refundable amount is up to $5,000 per qualifying child. However, any nonrefundable amount carried forward can’t be used to calculate a refundable portion for future tax years.
- American Opportunity Tax Credit (AOTC)
The AOTC provides tax relief for qualified higher‑education expenses during the first four years of post‑secondary education for eligible students. The credit amount is up to $2,500 per year and up to $1,000 is refundable.
Documentation, compliance, and avoiding scams
Tax Tip 2026‑10 underscores that taxpayers must retain documentation to prove eligibility for any credit they claim, including proof of child relationships and residency, care expenses, tuition payments, retirement contributions, health coverage, and fuel usage. Good record‑keeping not only supports accurate returns but also streamlines responses if the IRS requests verification.