Though even the slightest mention of the IRS can inspire a sense of dread, we have good news: there are a number of helpful tax deductions and credits for you to explore in 2022.
But before we move on, let’s clarify the difference between tax deductions and tax credits.
In short, a tax deduction helps lower your taxable income (i.e. your “tax liability”).
For the sake of example, let’s say a person makes an annual income of $50,000. With the help of a few deductions, their tax liability might then be reduced to $46,000. This would lower the total amount of tax they owe and result in a larger refund of their withholdings.
On the other hand, a tax credit is a dollar-for-dollar reduction of income tax owed.
For example, if a person qualified for a $2,000 tax credit, the total amount of tax they owed would be reduced by exactly $2,000. Or, if that person qualified for a $2,000 tax credit when they only owed $500, they would receive a refund of $1,500.
In some cases, you may be faced with choosing between taking a deduction and receiving a credit. Given the complexity of these issues, we encourage you to work with a tax professional or financial planner to help make the most effective decisions possible.
Here are six commonly overlooked tax credits and tax deductions for immigrants
1. The Child Tax Credit
In 2021, the value of the child tax credit (CTC) increased to a maximum of $3,600 per child ages 5 or younger (and $3,000 per child between the ages of 6 and 17).
If you received advance child tax credit payments last year (which began in July of 2021), you will be eligible to claim the remainder of the credit.
If you did not receive any advance payments last year, you will be eligible to claim the full credit so long as you file your taxes by April 18, 2022.
Be sure to claim the child tax credit on IRS Form 1040 (i.e., the U.S. Individual Income Tax Return).
2. Claiming Dependents (and Qualifying Relatives)
In addition to claiming the child tax credit, be sure to list all qualifying dependents on your tax return.
While this includes children under the age of 19 (and those under the age of 24 if they’re a full-time students), you can also claim as a dependent any relative who makes less than $4,300 a year.
A “qualifying relative” also constitutes anyone to whom you provide “more than half of the person’s total support for the year.”
Click here to view the IRS rules for claiming a dependent.
3. Earned Income Tax Credit (EITC)
Available to low-income and moderate-income taxpayers, the earned income tax credit (EITC) ranges from up to $1,502 for taxpayers with no children to $6,728 for families with three or more children.
As with the child tax credit, you can also claim the EITC on form 1040.
Note: You must have a Social Security Number (SSN) to qualify for the EITC. Immigrants who only have an Individual Taxpayer Identification Number (ITIN) will not be eligible.
4. Tuition Deduction
Are you currently paying tuition for yourself, your spouse, or for a dependent?
You may be eligible to claim a tuition deduction.
In fact, if your gross income is $65,000 or less (or $130,000 for joint filers), you’ll be able to deduct up to $4,000 this year.
Or, if your gross adjusted income is between $65,001 and $80,000 (or between $130,001 and $160,000 for joint returns), you’ll be eligible for a $2,000 deduction.
Note: this deduction only applies to tuition and not to room and board, or to course-related books and supplies.
Use IRS Form 8917 to detail your tuition deduction.
5. Rideshare and Delivery Deductions
If you drive for a rideshare or delivery company — like Uber or Doordash — you’ll have the opportunity to make a number of deductions.
For example, the IRS permits self-employed rideshare and delivery drivers to make deductions for two categories: “operating expenses” and “vehicle expenses.”
These deductions will include items like tolls, fees and commissions deducted by your company, snacks for passengers, and even the cost of your cell phone plan.
You can also take the standard IRS mileage deduction, which is 56 cents per mile driven for business purposes in 2021.
Use Schedule C (Form 1040) to report your profits to the IRS, and be sure to carefully track your expenses and tax deductions throughout the year.
6. Lifetime Learning Credit (LLC)
Are you currently enrolled in college classes, ESL studies, or a professional certification course?
You may qualify for the Lifetime Learning Credit (LLC), which can provide up to $2,000 per tax return.
In order to claim the lifetime learning credit, you must have accrued at least $10,000 in education expenses in 2021 (and have earned under $69,000 — or $138,000 as a joint filer).
Click here to access IRS Form 8863 and to learn more about the lifetime learning credit.
Moving Forward
Unfortunately, tax remittances — the financial gifts you send to loved ones — are not yet tax-deductible and do not officially qualify as charitable giving.
While we remain hopeful that the IRS will soon provide deductions and credits for remittances, uLink will continue to do everything in our power to make sending money as reliable and affordable as possible.
With great exchange rates and fees starting as low as $0, you can send more money home than ever before. Plus, we’ll send you $10 gift cards to major retailers on your 1st, 2nd, and 5th transfer of $100 or more. That’s $30 in gift cards alone!
Miles from home — just moments away with uLink.
