Tax credits and deductions both reduce what you owe — but they work differently. A deduction reduces your taxable income, which indirectly lowers your tax. A credit reduces your tax bill directly, dollar for dollar. Knowing which ones apply to your situation can make a meaningful difference in what you owe or what you get back. This page covers the most common credits and deductions, with emphasis on those most relevant to working adults, retirees, and lower-income households.
Deductions: Reducing Your Taxable Income
Deductions lower the amount of income the IRS can tax. The most important decision most filers make is whether to take the standard deduction or to itemize. For the majority of filers — especially retirees — the standard deduction is the better choice.
Standard Deduction
For 2025, the standard deduction is $15,000 for single filers and $30,000 for married couples filing jointly. If you are 65 or older, you receive an additional amount: $2,000 more if you are single, or $1,600 per qualifying spouse if married filing jointly. A married couple where both spouses are 65 or older deducts $33,200 total. The standard deduction requires no documentation — you simply claim it on your return.
Itemized Deductions
Itemizing means listing specific deductible expenses and deducting the total instead of the standard amount. Common itemized deductions include: mortgage interest, state and local taxes (capped at $10,000), charitable contributions, and medical expenses that exceed 7.5% of your AGI. Itemizing only makes sense if your total qualifying expenses exceed the standard deduction — and since the standard deduction is high, most filers do better taking it. Itemizing requires keeping receipts and documentation.
Medical Expense Deduction
If you itemize, you can deduct medical and dental expenses that exceed 7.5% of your adjusted gross income. For a retiree with a $40,000 AGI, that threshold is $3,000 — meaning only medical costs above $3,000 are deductible. Qualifying expenses include doctor and hospital bills, prescription medications, dental and vision care, hearing aids, long-term care insurance premiums, and Medicare premiums. This deduction is most valuable for people with unusually high out-of-pocket healthcare costs in a given year.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit is a refundable credit for workers with low to moderate income. “Refundable” means that if the credit exceeds your tax liability, you receive the difference as a refund. For 2025, the maximum credit ranges from about $650 for filers without qualifying children to over $7,800 for those with three or more children. Income limits apply — for 2025, a single filer without children must have earned income and AGI below about $18,600. Workers over 25 and under 65 with no children may qualify; the age restriction for childless workers was temporarily relaxed in recent years.
Child Tax Credit and Other Family Credits
The Child Tax Credit provides up to $2,000 per qualifying child under age 17. Up to $1,700 is refundable for 2025. Related credits include the Child and Dependent Care Credit (for childcare or elder care expenses that allow you to work) and the Adoption Tax Credit. These credits are most relevant for working adults with dependents, but grandparents and others who are the primary caregiver for a qualifying child or dependent may also be eligible.
Saver’s Credit
The Retirement Savings Contributions Credit — commonly called the Saver’s Credit — rewards lower- and middle-income workers for contributing to a retirement account. The credit is worth 10%, 20%, or 50% of contributions to an IRA, 401(k), 403(b), or similar plan, up to a maximum credit of $1,000 ($2,000 for married couples). For 2025, eligibility phases out at $39,500 for single filers and $79,000 for married filing jointly. It is nonrefundable, meaning it can reduce your tax to zero but not below.
Who This Page Is For
- Workers and retirees who want to know whether itemizing or taking the standard deduction makes more sense for their situation
- Lower- and middle-income workers who may qualify for the Earned Income Tax Credit
- People with significant out-of-pocket medical expenses who want to know whether the medical deduction applies
- Retirees over 65 who want to understand how the additional standard deduction reduces their taxable income
- Anyone who made retirement account contributions and wants to know whether the Saver’s Credit applies
What to Do Next
- Determine whether the standard deduction or itemizing is better — add up your mortgage interest, state and local taxes, charitable gifts, and medical expenses; if the total exceeds the standard deduction, itemizing may save money
- Confirm whether you qualify for the EITC — income limits are strict, and the credit is often overlooked by eligible filers; the IRS EITC Assistant tool at irs.gov can help
- If you are 65 or older, make sure you are claiming the additional standard deduction — tax software handles this automatically if you enter your age, but manual filers sometimes miss it
- Check whether your medical expenses for the year exceeded 7.5% of your AGI — if so and you itemize, they may be deductible
- Review the Benefits & Financial Help page to see what assistance programs you may qualify for alongside tax credits
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Money Instructor does not provide tax, legal, or investment advice. This material has been prepared for educational and informational purposes only. You should consult your own tax advisor regarding your specific situation.
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