Don’t Miss the 5 Big Tax Breaks on This New IRS Tax Form! | USTaxAid

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Don’t Miss the 5 Big Tax Breaks on This New IRS Tax Form!

Written by Diane Kennedy, CPA on March 23, 2019

We have a brand-new tax form this year, Schedule 3. This is part of the 2018 Form 1040, Individual income tax return. And, thanks to the Trump Tax Plan, a lot of things have changed with your 2018 tax return.

Schedule 3 is used for tax credits. A tax credit better than a tax deduction because a tax credit goes directly against the tax you owe. A tax deduction reduces your taxable income, on which your tax is calculated. For example, let’s say you pay 25% tax on your taxable income. If you have a $1,000 tax deduction, you’ll save $250 in taxes. If you have a $1,000 tax credit, you’ll save $1,000 in taxes.

Tax credits rock!

There are two types of tax credits, refundable and non-refundable. The name doesn’t necessarily make a lot of sense. A refundable tax credit means that you get money in excess of what you actually paid in. For example, earned income tax credit is partially refundable.  If you have tax due of $3,000 (regardless of whether you’ve had  withholding or not), you may receive $4,000 or more (provided you qualify). A non-refundable tax credit means you can get a credit against tax you owe or that you have paid, but you can’t get  it in excess of the tax that’s due.

The 5 different tax credit line items on Schedule 3 are:

Child and Dependent Care Credit: This is a tax credit of 20% – 35% up to $3,000 in child care or dependent care expenses per dependent or $6,000 for 2 or more dependents.

This is only applicable if you have earned income. If you’re married, both spouses need earned income.

Two Types of Education Credit: There are a couple of different education credits. The American Opportunity credit for undergraduate work covers up to $2,500 per year for up to 4 years.  It has 40% of the credit available as refundable and therefore shows up elsewhere on your tax return, not Schedule 3.

The Lifetime Learning credit covers a broader range of educational expenses. It maxes up to $2,000 per year but offers an unlimited number of years to claim it. It is not refundable.

Savers Credit: This refers to the retirement savings contribution credit which is also known as the saver’s credit to low- and middle-income taxpayers. The credit pays back 10% – 50%  of pension contributions, in the  right circumstances.

Residential  Energy Credit:  The residential energy credits have been extended through the 2021 tax year. Some related energy credits expired at the end of 2017, though so be careful. This is a nonrefundable tax credit and covers certain home improvements involving sole electricity or water-heating projects, small wind energy installations or geothermal heat pumps. They may qualify for a  30% tax credit.

Don’t  miss out!

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