Miscellaneous Tax Credits: What They Are, How They Work

Lea Uradu, J.D. is a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, and Tax Writer.

What Are Miscellaneous Tax Credits?

Miscellaneous tax credits are less common tax credits that apply to taxpayers in various situations. A tax credit is an amount of money that people can subtract, dollar for dollar, from the income taxes they owe.

Like other tax credits, miscellaneous tax credits reward and promote certain economic activities or those who have made their homes more energy-efficient.

For example, all-electric (EV) vehicles and plug-in hybrid cars purchased new in or after 2010 may be eligible for a federal income tax credit of up to $7,500. The specific credit amount varies based on the battery capacity used. Some states and cities also provide tax incentives for qualified vehicles. Neighborhood electric vehicles (NEVs) do not qualify for this credit.

In addition, The American Recovery and Reinvestment Act (ARRA) of 2009 created tax incentives for homeowners who make their homes more energy-efficient. Improvements such as energy-efficient exterior windows, doors, and HVAC systems may qualify for an energy tax credit of up to 30% of the cost.

Miscellaneous tax credits change as the tax code changes and behaviors are rewarded or discouraged.

Key Takeaways

• Miscellaneous tax credits apply to taxpayers in various situations.
• Miscellaneous tax credits reward economic activities or energy-efficient homes.
• Miscellaneous tax credits change with the tax code.
• Popular miscellaneous tax credits include the Mortgage Interest Credit, the Prior-Year Alternative Minimum Tax Credit, the Foreign Tax Credit, and the Qualified Electric Vehicle Credit.
• Most miscellaneous tax credits are non-refundable. If the credits reduce the tax burden to a credit, it cannot be refunded.

Understanding Miscellaneous Tax Credits

Miscellaneous tax credits are offered to taxpayers who perform certain actions to qualify. The IRS divides these credits into five categories: family and dependent credits, income and savings credits, homeowner credits, healthcare credits, and education credits.

Popular miscellaneous tax credits include the Mortgage Interest Credit, the Prior-Year Alternative Minimum Tax Credit, the Foreign Tax Credit, and the Qualified Electric Vehicle Credit.

Most miscellaneous tax credits are non-refundable. They reduce the taxpayer’s tax liability, but if they give the taxpayer a credit, it cannot be refunded. The exceptions are the credit for excess Social Security taxes withheld and the credit for railroad retirement benefits withheld.

Miscellaneous Tax Credits vs. Miscellaneous Tax Deductions

Miscellaneous tax credits are applied after the taxpayer’s income and tax liability are calculated. They directly subtract from the tax owed. Miscellaneous tax deductions are subtracted from the taxpayer’s income and affect the total taxable income used to calculate the tax liability.

Tax credits are after-tax, while tax deductions are before-tax. Miscellaneous tax credits can be taken if the taxpayer qualifies. Miscellaneous tax deductions can only be taken if total deductions exceed 2% of the taxpayer’s gross income.