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As we head into a new year and gear up for the 2022 tax season, maximizing your tax refund — or minimizing the amount you owe — could play an important role in your financial game plan. And there were changes to tax laws in 2021 to now take into account. For example, there was an expansion of the child tax credit, an extension of the charitable contributions deduction and an unemployment tax break on 2020 benefits, plus student loan forgiveness is now tax-free through 2025.
We’ve rounded up 13 of the most valuable tax deductions for most filers. These deductions are primarily for those who are not self-employed — a group with its own, largely separate, set of tax write-off options. We’ll keep this list updated as we receive new information on the 2021 tax year from the IRS.
Note: A tax year refers to the 12-month period that a tax return covers, usually from Jan. 1 to Dec. 31 in the US, and includes taxes owed on earnings during that period. A tax season is the period, generally between Jan. 1 and April 15, when taxpayers prepare financial reports for the previous year and submit their tax returns. That means taxes for earnings during the 2021 tax year would be included on a 2021 tax return that the IRS sends to taxpayers in the 2022 tax season.
Read more: The best tax software for 2021: TurboTax, H&R Block, TaxSlayer and more
1. Child tax credit
The new child tax credit was made fully refundable in 2021 and increased to up to $3,600 per year per child through age 5, and up to $3,000 per year for children ages 6 to 17. (Parents of newborns born in 2021 can also claim this credit in 2022.) Eligible families automatically received half the total of the payments in advance monthly installments in July through December 2021, unless they unenrolled. When families file their taxes in 2022, they’ll get the remainder of the benefit they didn’t get through the 2021 advance monthly installments. Even if a parent makes little to no income, they are still eligible for the expanded child tax credit, but payment amounts do phase out with higher incomes.
Dependents who are 18 years old can qualify for $500 each. Dependents between the ages of 19 and 24 may qualify as well, but they must be enrolled in college full time.
Eligible dependents include:
- Child
- Stepchild
- Foster child
- Sibling
- Step-sibling
- Half-sibling
- Grandchild
- Niece/nephew
- Adopted child
If you received advance payments for the child tax credit this year, you won’t be able to claim the full deduction at tax time. The IRS will send you Letter 6419 in January 2022 to let you know how much you received in advance child tax credit disbursements and how much you have left to claim. If you opted out of advance payments, you’re eligible for the full amount of the credit. If you’re not sure where you stand with this credit, you can review more at the Child Tax Credit Update Portal on the IRS website.
Read more: Child tax credit update portal: Update your income details, review your payments and more
2. Recovery rebate credit (for a missing stimulus payment)
If you never received your third stimulus payment and were eligible or if you weren’t paid the full amount, you may be eligible for the Recovery Rebate Credit. Missing first and second payments can only be claimed on your 2020 tax return, but missing third payments can be claimed when you file your 2021 tax return in 2022.
3. Earned income tax credit
The earned income tax credit reduces the amount of taxes owed for low- to moderate-income workers and families. The IRS typically notifies households that might qualify for EITC, but if you aren’t contacted by the time you sit down to do your taxes, you can check eligibility with the EITC Assistant.
4. Lifetime learning credit
The lifetime learning credit, or LLC, applies to higher education candidates. To claim it, you, your spouse or a dependent must be footing the bill for qualifying higher education costs.
In the 2021 tax season, you could claim the full credit on your 2020 tax return if your modified adjusted gross income (MAGI) was lower than $58,000 — or a partial credit if your MAGI was between $58,000 and $68,000. When filing jointly, your MAGI had to be under $118,000 for the full credit or between $118,000 and $138,000 for the partial credit. We don’t know the exact thresholds for 2021 tax returns, but those numbers will be released in January 2022.
This credit is worth 20% of the first $10,000 you pay in qualifying higher education costs, meaning you can earn up to $2,000. The LLC is not refundable, however, which means you can only use this credit to lower your tax bill, but you won’t receive any money earned in the form of a refund.
5. American opportunity tax credit
The American opportunity tax credit, or AOTC, is exclusively for first-time college students for their first four years of college or other higher education, which makes it different from the LLC (above). If you’re pursuing a degree and haven’t had a felony drug conviction, you could qualify if you meet income thresholds.
For your 2020 tax return, your modified adjusted gross income could not exceed $80,000 a year in order to claim the full credit and had to be between $80,000 and $90,000 for the partial credit. For joint filers, your MAGI could not exceed $160,000 for the full credit or must have fallen between $160,000 and $180,000 for the partial credit. The exact thresholds for 2021 tax returns will be released in January 2022.
The AOTC is worth up to $2,500 (100% of the first $2,000 spent and 25% of the next $2,000 spent on qualifying expenses). This credit is partially refundable — if deducting this credit brings your tax balance to zero, 40% of the remaining amount of this credit (up to $1,000) may be given back to you as a tax refund.
6. Child and dependent care credit
If you care for a child or another dependent in your household, you may be able to receive up to 50% back as a tax break or refund for your child care-related expenses in 2021. The amount you can claim maxes out at $8,000 for one dependent and $16,000 for two or more. To qualify, you’ll need to provide proof of your expenses come tax time.
7. Saver’s credit
If you make contributions to an individual retirement account or employer-sponsored retirement plan, such as a 401(k), you may qualify for the saver’s credit. You must be at least 18 years of age, you can’t be a full-time student and no one else can claim you as a dependent on their tax return. The amount of the credit depends on your AGI, but can be between 50%, 20% or 10% (the maximum you could receive is $1,000 if filing alone or $2,000 if filing jointly). Here are the rates for the 2022 season:
2022 saver’s credit threshold
| Credit rate | Head of household | Married (filing jointly) | All other filers (single, married and filing separately, widowed) |
|---|---|---|---|
| 50% of your contribution | AGI not more than $30,750 | AGI not more than $41,000 | AGI not more than $20,500 |
| 20% of your contribution | $30,751 – $33,000 | $41,001- $44,000 | $20,501 – $22,000 |
| 10% of your contribution | $33,001 – $51,000 | $44,001 – $68,000 | $22,001 – $34,000 |
| 0% of your contribution | more than $51,000 | more than $68,000 | more than $34,000 |
8. Adoption tax credit
There are also benefits available for expenses related to adoption. The adoption tax credit covers adoption fees, court costs, attorney fees, traveling expenses and other expenses that are directly related to adoption.
For the 2020 tax year, the maximum amount was $14,300 per child. The 2021 adoption tax thresholds will be published by the IRS in January 2022.
9. Medical and dental expenses
Even with insurance, you might have to pay for medical expenses out of pocket. You can deduct these expenses for you, your spouse or any of your dependents, as long as the total amount exceeds 7.5% of your AGI. Possible expenses include:
- Fees to doctors, dentists, specialists, mental health professionals and even nontraditional medical practitioners
- Hospital care, residential nursing home care and acupuncture treatments
- Treatment for alcohol, drug addiction, smoking-cessation programs and prescription drugs for nicotine withdrawal and related addiction needs
- Payments for insulin, eyeglasses, contact lenses, hearing aids, crutches, wheelchairs, guide dogs and other service animals
Funeral expenses, over-the-counter medications and most cosmetic surgery can’t be deducted.
10. Residential energy credit
For the energy-efficient homeowner, you could claim a residential energy credit. The credit includes:
- Energy-efficient windows and doors
- Roofs
- Insulation
- Energy-efficient heating and AC systems
- Water heaters
- Biomass stoves
- Qualifying solar electric property and solar water heaters
Read more: Electric-car tax credit issued improperly to thousands, audit finds
11. Student loan interest deduction
Federal student loans were automatically deferred for all of 2021, but if you paid interest on private loans or resumed federal student loan payments for yourself, your spouse or another dependent, you may qualify for this tax credit. You can claim the deduction as an adjustment to your income rather than an itemized deduction.
For 2020 tax returns, you were able to deduct either $2,500 or the actual amount of interest you paid during the year, whichever is less. We’ll update the 2021 tax deduction limits as they become available.
12. Health savings account contribution
If you have a health savings account, contributions made to your HSA are not subject to federal income tax. You can also claim a tax deduction for making contributions to your HSA.
Contribution limits vary by your high-deductible health plan, your age and the date you become eligible. The IRS released an early draft on the 2021 thresholds for HSA contribution deductions, but this information could update in early 2022.
13. Charitable contribution deductions
Charitable contributions are one of the most common ways to get a tax deduction. You can deduct contributions of money or property you donated to qualified organizations, but you’ll need to itemize your deductions.
In most cases, you can deduct up to 100% of your AGI, but there are some cases where you might be limited to 20% or 30%.