5 Middle Class Tax Breaks

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I have heard a ton about tax breaks for the wealthy over the last two years. I have also heard a few things about tax breaks for the poor but didn’t know any details. I seldom heard about tax breaks for middle class individuals though. I thought I could do us all a favor and write about tax breaks I saw mentioned at Kiplinger. You may be able to benefit by taking advantage of the following tax breaks for the middle and lower income classes (and some of these may apply even if you are in the upper echelons of the IRS tax brackets).

Tax Break #1 – Saving for Retirement

Individuals that are not enrolled in a retirement plan at work can deduct 100% of their IRA contributions. The maximum contribution is $5,000 for people that are under the age of 50. Those that are 50 or older can contribute up to $6,000. An added bonus is that spouses with very little income are eligible for the IRA contribution deductions too.

Tax Break #2 – Savings

Individuals with low incomes can take advantage of the Savers Tax Credit. This tax credit increases based on income. Lower incomes qualify for the maximum tax credit available, so it benefits many part time workers and minimum wage employees. Workers can take a tax credit of up to $1,000 and the percentage typically ranges between 10% and 50%.

Tax Break #3 – Earned Income Tax Credit

Take advantage of the earned income tax credit while it is still available. Individuals with low income levels can benefit from the earned income tax credit by receiving a credit of $464 to $5,751 depending on their income. It is one of the few ways that the government will actually send you a check if your credit causes a negative balance. In order to qualify for the tax credit you have to make less than $13,660 if single and $18,740 if married.

Tax Break #4 – Child Tax Credits

As long as your income is below $75,000 if single and $110,000 for married filers, you can qualify for the child tax credit. You can take an automatic $1000 credit for the year in which your child is born. The $1,000 tax credit will reduce your overall tax liability to the federal government.

Tax Break #5 – Capital Gains

Investors get the added benefit of being able to pay lower taxes on money that is invested for a year or more. The long term capital gains tax rate is capped at a maximum of 15% for all earners. Lower income earners may qualify for a 0% tax rate, which means that they will not have to pay any taxes on investments. To qualify for the 0% rate, your taxable income can’t exceed $34,500 if you are single, $46,250 if you are a single head of household with dependents, or $69,000 if you are married filing jointly.

Tax Break #6 – American Opportunity Tax Credit

Single individuals that make below $80,000 and married couples that make less than $160,000 are eligible for the American Opportunity Tax Credit. This tax credit allows these filers to deduct up to $2,500 of college expenses and college related expenses per tax year. This is a good way to recoup a little of the money spent on your higher education.

Tax Break #7 – Lifetime Learning Tax Credit

The Lifetime Learning Credit allows taxpayers to deduct up to $2,000 of educational expenses each year. This credit is available to single people with $60,000 or less income and married filers with $120,000 or less in income.

Tax Break #8 – Interest Expense Deductions

You can recoup some of the money spent on student loans by deducting up to $2,500 in interest per year. Savings bond interest is also not subject to taxes when it is used to pay for educational expenses that are approved by the government. Tuition and fees are also deductible up to $4,000 for many middle class and lower income taxpayers.

Did you see any that you are eligible for?

{ 11 comments, please add your thoughts now! }

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11 Responses to “5 Middle Class Tax Breaks”

  1. andy says:

    I don’t know if I would classify capital gains tax breaks (which are low because of bush tax cuts extension) a middle class tax break. Seems like the upper middle class and almost-rich (>200K household income) gain more from it because of their higher marginal tax rates.

  2. Stefanie says:

    When I look up the saver’s tax credit for more info, all I find is information about claiming IRA or other retirement account savings. Do you have any other/ different info or a site to go to for more info about it? Thanks!

  3. nimrod says:

    Be careful about saving pretax money in your IRA.
    I saved this way and now because of the social security benefits tax I have a marginal tax of
    37%. Each dollar I take from my IRA triggers a
    $1.85 of taxable income.Thanks for the tax break.

  4. Shirley says:

    I would also like to know more about the Savers Tax Credit.

  5. ebow says:

    Five tax breaks… for large values of “five” 🙂

  6. I’m not so sure the requirements for #3 qualify for “middle class”. I’m pretty sure the cut-off for salary range is well above that.

  7. Agent says:

    Tax breaks for Middle and low income? Sorry where I come from the middle class and low income dont have the money to save, put into any type of IRA 401k and some dont have younger children or their children cant afford college which knocks out the other 5 tax breaks.

    Middle class is way too broad. My idea of middle class is being able to pay your bills and get food on the table and maybe gas in the car if you know which “paul” you can rob from that month — there is not a dime left to invest or save .. period

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