Tax Basics
Chapter 1:
Filling out your W-4
Chapter 2:
Filing your return
Chapter 3:
Deductions, the first step to cutting your tax bill
Chapter 4:

Tax credits, the better way to cut your tax bill
  1. Earned income tax credit
  2. Child-related tax credits
  3. Education tax credits
  4. Retirement saver’s credit
  5. Tips to help you claim all the tax credits you can
Chapter 5:
Your changing tax life
Chapter 6:
Taking care of tax details

While these items don’t seem to strictly fall into the tax credit category (technically they are counted in the “payments” section of your return), you definitely get credit on your tax return for all of your paycheck withholding. And while you’re adding up that amount, don’t forget to claim other taxes you paid, such as excess Social Security or some specific investment taxes.

You may be entitled to the excess Social Security tax credit if you worked more than one job or if you changed jobs during a tax year. Why? Uncle Sam may have received too much in Social Security withholdings from your wages.

There’s a limit on the maximum amount of wages subject to Social Security taxes. It changes each year because of inflation adjustments. Check your tax return’s instruction book or in Publication 505, Tax Withholding and Estimated Tax, for the limit.

For the income that falls under the Social Security earnings limit, your employer will deduct 6.2 percent from your wages for Social Security purposes. But since you’re only liable for a maximum of 6.2 percent of the IRS salary limit, if you had two jobs with combined incomes over that limit, too much Social Security tax probably was withheld. (There is no maximum amount on earnings for the 1.45 percent withheld for Medicare purposes.)

The good news: You can take a credit for the excess withheld in the “Payments” section of Form 1040 or Form 1040A. Since it is credited in the payment section, it is a refundable credit and is applied like a payment. It will either be applied against any tax owed or refunded to you.

You can’t claim the credit for excess Social Security tax on Form 1040EZ.

Other withholding amounts

Most people don’t have a problem with remembering to report withholding amounts found on their W-2s. But many people forget to claim any withholding on dividends or interest income. You’ll find the figures on the tax statements that your account managers send you each January.

Credit from a Regulated Investment Company

You must include in your income any amounts that an investment company (for example, a mutual fund) allocated to you as capital gain distributions, even if you didn’t actually receive them.

If the investment company paid a tax on the capital gain, you’re allowed a credit for the tax since it is considered paid by you. The company will send you Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, showing the undistributed capital gains amount and the tax paid, if any. Claim the credit by entering the amount on the appropriate line in the payments section; be sure to checking box A on that line and attach Copy B of Form 2439 to your return.