Other credits and deductions

Other credits and adjustments

Refundable or not (2025): the net premium tax credit and the fuels tax credit are refundable; the adoption credit is refundable up to $5,000 per child; the saver’s credit, the credit for the elderly or the disabled, and the foreign tax credit are nonrefundable.

Premium tax credit

To be eligible for the premium tax credit, a taxpayer’s household income must be at least 100% of the federal poverty amount per family size and, for years other than 2021 through 2025, no more than 400% of the federal poverty line for your family size (for 2025, a household above 400% can still qualify). The credit covers only months a person is enrolled in a Marketplace plan and isn’t eligible for other minimum essential coverage, such as Medicare, Medicaid, or an affordable employer plan that provides minimum value (even if declined); a self-employed taxpayer with no such offer can qualify. When advance payments of the credit exceed the credit allowed, the excess is repaid on Form 8962; the repayment is capped for household income under 400% of the federal poverty line (ranging from $375 to $1,625 for single filers and $750 to $3,250 for other filing statuses for 2025) and is not capped at 400% or more. A married taxpayer must file a joint return to take the credit; one who files separately qualifies only as a victim of domestic abuse or spousal abandonment. For further research, consult Form 8962 and IRS Publication 974: Premium Tax Credit on the IRS website.

Definitions

Federal poverty line (FPL)

An annual income threshold published by the U.S. Department of Health and Human Services, used to determine eligibility for various federal assistance programs. The FPL varies by household size and is updated each year. For the Premium Tax Credit, eligibility and repayment obligations are based on household income as a percentage of the FPL.

Savers’ credit (retirement saving contribution credit)

A taxpayer is eligible for the saver’s credit if all the following apply:

• At least 18 years of age and not claimed as a dependent by another taxpayer
• Not a full-time student during any part of five calendar months of the tax year
• Makes voluntary contributions to a qualified retirement plan (a rollover from another plan or IRA isn’t a contribution for this credit)
• Modified adjusted gross income (MAGI) does not exceed the limit for their filing status

The credit is reduced by any retirement plan distributions received during the testing period (the two prior tax years, the tax year, and the period up to the return’s due date, including extensions) and is nonrefundable. A Roth IRA distribution that isn’t rolled over counts even if it isn’t taxable. For details, including eligibility requirements and credit calculations, visit the IRS page for Form 8880: Credit for Qualified Retirement Savings Contributions.

Definitions

Qualified retirement plan

A retirement savings plan that meets IRS requirements under the Internal Revenue Code and provides tax advantages to participants. Common examples include 401(k) plans, 403(b) plans, traditional and Roth IRAs, SEP-IRAs, and SIMPLE IRAs. For the saver’s credit only the taxpayer’s own contributions and elective deferrals count; an employer’s matching or other contributions don’t.

Adoption credit

An eligible child must be younger than 18 years of age to qualify for the adoption credit. If the adopted person is 18 or older, they must be physically or mentally incapable of self-care to qualify. There are certain provisions for special-needs children. For 2025, the maximum credit is $17,280 per eligible child, phased out for modified AGI between $259,190 and $299,190. When the adoption of a U.S. child with special needs becomes final, the taxpayer is treated as having paid the full $17,280 (minus any expenses used for an adoption credit for that child in an earlier year), so the full credit is available even if actual qualified adoption expenses were less - or zero. A child has special needs only if a state or Indian tribal government has determined that the child can’t or shouldn’t be returned to the parents’ home and won’t be adopted unless adoption assistance is provided to the adoptive parents. A foreign child never qualifies as a child with special needs, and expenses of adopting a foreign child can be claimed only once the adoption becomes final; expenses for a U.S. child can be claimed even if the adoption never becomes final. Income can also be excluded as taxable through an employer-provided adoption benefit program. Both a credit and exclusion may be claimed for the same adoption; however, both cannot be claimed for the same expenses. For tax year 2025, the adoption credit is partially refundable: up to $5,000 per qualifying child is refundable, and any remaining credit is nonrefundable but may be carried forward up to 5 years. The credit is calculated on Form 8839. The adoption tax credit limitations and restrictions change on an annual basis; review the Instructions for Form 8839 (2025) for the most current details.

Qualified expenses include, but are not limited to

• Home study fees paid before the child is identified
• Legal fees and court costs
• Adoption-related travel expenses, including meals and lodging while away from home
• Re-adoption expenses for a foreign child
• Other reasonable and necessary expenses directly related to, and for the principal purpose of, the legal adoption

Expenses that do not qualify for the adoption credit:

• Fees to adopt your spouse’s child
• Fees involved with a surrogacy plan
• Fees that are reimbursed by your employer

Employer-provided adoption benefits are considered reimbursement of expenses and cannot be used as part of the adoption tax credit, but they can be excluded from income on Form 8839, Part III.

Credit for the elderly and the disabled

A taxpayer may qualify for the Credit for the elderly or the disabled if all the following apply:

Age or disability requirement

• Taxpayer is age 65 or older, or
• Taxpayer is under 65, retired on permanent and total disability, and received taxable disability income (and had not reached mandatory retirement age).

Definitions

Permanently and totally disabled

As defined by the IRS, a person is permanently and totally disabled if they cannot engage in any substantial gainful activity due to a physical or mental condition, and a physician certifies that the condition has lasted or is expected to last continuously for at least 12 months, or is expected to result in death.

Filing status

• Taxpayer files as single, head of household, qualifying surviving spouse, or married filing jointly.
• If married filing separately, the taxpayer must have lived apart from the spouse the entire year.

Income limits

• Adjusted gross income (AGI) and nontaxable Social Security, pensions, or disability income must be below certain limits set by the IRS.

Credit amount

• The credit is 15% of your initial amount (which depends on filing status), reduced by your nontaxable Social Security and other nontaxable pension or disability benefits and by one-half of your AGI over the threshold for your filing status.

Calculate the credit amount using Schedule R (Form 1040). The credit for the elderly or the disabled is nonrefundable.

Energy credits

The 2025 residential energy credits, figured on Form 5695, are covered in Education, business, and specialized tax credit.

Foreign tax credits

Individual taxpayers, estates, and trusts are eligible to claim the foreign tax credit for the imposition of taxes by foreign taxing authorities.

To qualify for the credit a taxpayer must:

• Be a U.S. citizen, resident alien, or U.S. nonresident alien who is a full-year resident of Puerto Rico.
• Have paid, accrued, or owe taxes of foreign income that is also subject to U.S. income tax.
• Have paid the tax imposed on you by a foreign country or U.S. possession.
• The foreign tax must be a tax on income or a tax in lieu of an income tax.

The foreign tax credit is calculated on IRS Form 1116 and is nonrefundable, though any unused credit can be carried back 1 year and forward up to 10 years. There are some foreign taxes for which credits are disallowed; the IRS maintains a list of foreign taxes that qualify for the foreign tax credit for further information about this and other topics.

Definitions

Resident alien

A foreign-born individual who is not a U.S. citizen but meets either the green card test or the substantial presence test for the tax year, and is therefore taxed on worldwide income like a U.S. citizen.

Nonresident alien

A foreign-born individual who does not meet the green card test or the substantial presence test, and is generally taxed only on income derived from U.S. sources.

Fuels credit

The fuels tax credit is a refundable tax credit for fuel used for off-highway business and farming purposes. The credit is available only for nontaxable uses of gasoline, aviation gasoline, undyed diesel, and undyed kerosene. Fuel used in a highway vehicle registered for highway use (for personal driving, commuting, or ordinary business driving) doesn’t qualify; the taxpayer must keep accurate records showing the fuel was used for a nontaxable purpose. Other nontaxable uses include use in a boat engaged in commercial fishing, in certain intercity, local, and school buses, and exclusive use by a nonprofit educational organization.

The fuels credit applies to:

• Fuel used in tractors, plows, or irrigation pumps
• Generators, compressors, or other industrial equipment

See the Instructions for Form 4136 (2025) for detailed information.

Definitions

Nontaxable use of fuel

A use of fuel that is exempt from federal excise tax because it is consumed for qualifying off-highway business purposes, farming, or other approved activities rather than for on-road transportation. These uses are eligible for the fuels tax credit claimed on Form 4136.