EA Part 1 Tax Credits: Child, Education, and Earned Income Credits Explained

Tax credits reduce tax liability dollar-for-dollar, making them more valuable per dollar than deductions. EA Part 1 tests credits heavily because the rules are specific — phase-out thresholds, refundability limits, and eligibility conditions all appear as exam traps. Mastering this topic requires knowing not just what each credit is, but exactly how much is refundable and what disqualifies a taxpayer.

Child Tax Credit (CTC)

The Child Tax Credit is $2,000 per qualifying child under age 17 at year-end. The child must have a valid Social Security number.

Refundability: Up to $1,700 of the CTC per child is refundable as the Additional Child Tax Credit (ACTC). The refundable portion is limited to 15% of earned income above $2,500.

Phase-out: The CTC begins to phase out at:

• $400,000 AGI for MFJ
• $200,000 AGI for all other filers

The credit reduces by $50 for each $1,000 (or fraction thereof) of AGI above the threshold.

Other Dependents Credit: A nonrefundable $500 credit is available for qualifying dependents who do not qualify for the CTC — including qualifying relatives, dependents with ITINs instead of SSNs, and qualifying children aged 17 or 18.

Earned Income Tax Credit (EITC)

The EITC is a refundable credit designed to benefit low-to-moderate income workers. It is one of the most frequently audited items on individual returns and one of the most-tested credits on Part 1.

Eligibility basics:

• Must have earned income (wages, salaries, net SE income)
• Investment income must be $11,600 or less for 2024
• Must have a valid SSN
• Cannot file MFS
• Cannot be claimed as a dependent by another taxpayer
• Must be a U.S. citizen or resident alien all year

Maximum credit and income limits (2024):

Qualifying Children	Max Credit	Phase-Out Begins (Single)	Disqualified Above (Single)
0	$632	$9,524	$18,591
1	$4,213	$21,115	$49,084
2	$6,960	$21,115	$55,768
3+	$7,830	$21,115	$59,899

MFJ phase-out thresholds are approximately $5,000 higher. The EITC is calculated on the greater of earned income or AGI.

Qualifying child for EITC uses the standard qualifying child tests (relationship, age, residency, support, joint return), but age is extended: the child must be under 19, under 24 and a full-time student, or permanently disabled.

Child and Dependent Care Credit

This credit covers expenses for the care of qualifying persons so the taxpayer (and spouse, if MFJ) can work or look for work.

Qualifying persons:

• A qualifying child under age 13
• A spouse who is incapable of self-care
• Any dependent who is incapable of self-care and lived with the taxpayer for more than half the year

Expense limits:

• $3,000 for one qualifying person
• $6,000 for two or more qualifying persons

Credit percentage: Ranges from 20% to 35% of qualifying expenses depending on AGI. The 35% rate applies at AGI of $15,000 or less; it phases down to 20% at AGI above $43,000. The credit is nonrefundable.

Employer-provided dependent care FSA: Employer-provided dependent care benefits (up to $5,000) reduce the expense base dollar-for-dollar before calculating the credit.

American Opportunity Tax Credit (AOTC)

The AOTC applies to the first four years of post-secondary education.

• Maximum credit: $2,500 per eligible student (100% of first $2,000 + 25% of next $2,000)
• 40% is refundable (up to $1,000)
• Student must be enrolled at least half-time and not have completed four years of higher education
• No felony drug conviction during the year

Phase-out: Begins at $80,000 AGI (single) and $160,000 (MFJ); fully phased out at $90,000 / $180,000.

Lifetime Learning Credit (LLC)

The LLC covers tuition and related expenses at eligible institutions for any year of education, including graduate and professional programs.

• Maximum credit: $2,000 per return (20% of up to $10,000 of expenses)
• Nonrefundable — cannot reduce tax below zero
• No limit on the number of years claimed
• The student does not need to be enrolled at least half-time

Phase-out (2024): Begins at $80,000 AGI (single) and $160,000 (MFJ). The AOTC and LLC cannot both be claimed for the same student in the same year.

Retirement Savings Contributions Credit (Saver's Credit)

The Saver's Credit rewards low-to-moderate income taxpayers who contribute to qualifying retirement accounts (Traditional IRA, Roth IRA, 401(k), 403(b), SIMPLE, SEP).

Credit rate (2024):

AGI (Single)	AGI (MFJ)	Credit Rate
Up to $23,000	Up to $46,000	50%
$23,001–$25,000	$46,001–$50,000	20%
$25,001–$38,250	$50,001–$76,500	10%
Over $38,250	Over $76,500	0%

Maximum contribution base: $2,000 per person ($4,000 MFJ). Maximum credit: $1,000 per person.

The credit is nonrefundable. It is also reduced by recent distributions from retirement accounts. Students enrolled full-time and dependents cannot claim it.

Common Exam Traps on Credits

Trap 1: The EITC is not available to MFS filers — period. No exceptions.

Trap 2: The child and dependent care credit is based on the smaller of actual expenses, the expense limit, or the taxpayer's (or lower-earning spouse's) earned income.

Trap 3: The AOTC can only be claimed for four tax years per student — not necessarily four consecutive years. If a student took the AOTC for two years, dropped out, and returned, only two years remain.

Trap 4: Education expenses paid with 529 plan distributions cannot also generate the AOTC or LLC — no double-dipping.

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