Deductions and Credits · Credits

Other credits (refundable and nonrefundable)

The outline names three examples for this topic — the health coverage tax credit, energy credits, and the retirement savings contribution credit. As of taxable year 2026 the first of those has not existed for four years and the second has just ended. That is not a reason to skip them: knowing that a credit has terminated, and on what date, is exactly what the examination and a client both need.

The rule

The saver’s credit. 50 percent of up to $2,000 of qualified retirement savings contributions per eligible individual, falling to 20 percent and then 10 percent as adjusted gross income rises and to nothing above the top figure — so a maximum of $1,000 per individual and $2,000 on a joint return where both contribute^TY2026 (IRC § 25B(a), (b)(1)). The percentage steps down at adjusted gross income breakpoints rather than tapering: for 2026, on a joint return 50 percent up to $48,500, 20 percent to $52,500 and 10 percent to $80,500; for a head of household $36,375, $39,375 and $60,375; for all other returns $24,250, $26,250 and $40,250^TY2026. Head of household figures are 75 percent of the joint figures and all other returns 50 percent of them, by § 25B(b)(2)(A) and (B), which is why the three sets of numbers are in fixed proportion.

Qualified retirement savings contributions include elective deferrals, IRA contributions — traditional or Roth — and voluntary employee contributions to a qualified plan, reduced by distributions received during a testing period that runs from two years before the year through the due date of the return (IRC § 25B(d)(1), (2)). An eligible individual must be 18 or over, not a full-time student, and not a dependent of another taxpayer (IRC § 25B(c)(1)). The credit is nonrefundable.

The credit for the elderly and the permanently and totally disabled. $5,000 for a single individual or a joint return where one spouse qualifies, $7,500 where both do, and $3,750 on a separate return — never indexed since 1983 (IRC § 22(c)(2)(A))^TY2026 That starting figure is then cut twice: the section 22 amount is reduced by half the excess of adjusted gross income over $7,500 single, $10,000 joint or $5,000 on a separate return, and separately by nontaxable social security and other excluded pension benefits (IRC § 22(c)(3), (d))^TY2026. Because the amounts have not moved since 1983 while social security benefits have, the reduction for nontaxable benefits alone eliminates the credit for most people who are old enough to claim it. A married taxpayer must file jointly unless the spouses lived apart for the whole year (IRC § 22(e)(1)).

Excess social security withholding. allowed only where the employee received wages from more than one employer — a single employer that over-withholds must refund the employee and issue a corrected Form W-2 (IRC § 31(b) and § 6413(c)(1))^TY2026 Where the employee did work for more than one employer, § 6413(c)(1) entitles them to a special refund of the tax withheld above the contribution and benefit base, and § 31(b)(1) turns that into a credit treated as tax withheld at source. It is therefore refundable in effect: it is a payment, not a subpart A credit. The credit is allowed for the taxable year beginning in the calendar year the wages were received (IRC § 31(b)(2)).

The health coverage tax credit. expired — IRC § 35(b)(1)(B) requires an eligible coverage month to begin before 1 January 2022, so no health coverage tax credit has been available since taxable year 2021^TY2026 While it operated, it covered a percentage of qualified health insurance premiums for individuals receiving trade adjustment assistance in its three forms and for Pension Benefit Guaranty Corporation pension recipients within an age band. None of that is live law.

The individual energy credits. all of the individual energy credits have ended: IRC § 25C does not apply to property placed in service after 31 December 2025, § 25D does not apply to expenditures made after that date, and §§ 30D and 25E allow no credit for a vehicle acquired after 30 September 2025^TY2026 Pub. L. 119-21 § 70506(b) also struck the step-down percentages that would have applied to § 25D property in 2033 and 2034, and § 70502(b) struck the later-year foreign entity percentages in § 30D — housekeeping that follows from ending the credits early.

Current figures

How it works in practice

Sort credits into subparts before anything else. Subpart A credits are nonrefundable and limited by § 26(a) to tax liability; subpart C credits are refundable and paid out. The saver’s credit and the elderly credit are subpart A. The premium tax credit and the earned income credit are subpart C. The excess social security amount is neither — it is treated as withheld tax.

For the saver’s credit, work in this order: identify each spouse separately, add their qualified contributions, apply the per-individual cap, subtract testing period distributions, then apply the percentage from the taxpayer’s adjusted gross income. The percentage is a cliff at each breakpoint, so a dollar of extra income can cost hundreds of dollars of credit — and a deductible IRA contribution both creates the credit and lowers the income that determines its rate.

For the elderly credit, expect the answer to be nothing. Run it anyway on the rare client with a small pension and no social security: initial amount, less nontaxable benefits, less half the excess adjusted gross income, times 15 percent.

For excess social security, check the number of employers first. Two or more, and the excess is a credit on the return. One, and the return is the wrong place — the employer must refund it and issue a corrected Form W-2.

How this has changed

The energy credits are the substantial change. Pub. L. 119-21 § 70505 ended the § 25C energy efficient home improvement credit for property placed in service after 31 December 2025 and, in § 70505(b), rewrote § 25C(d)(2)(C) on oil furnaces and boilers — an amendment that now has almost nothing left to operate on. Section 70506 ended the § 25D residential clean energy credit for expenditures made after the same date and struck the 2033 and 2034 step-down rates in § 25D(g)(4) and (5), which would have reduced the credit to 26 and then 22 percent. Section 70502 ended the § 30D clean vehicle credit and the § 25E previously-owned clean vehicle credit for vehicles acquired after 30 September 2025, and removed the later-year foreign entity percentages from § 30D(e).

Read those dates precisely. A taxpayer who bought an electric vehicle on 29 September 2025 has a credit; one who took delivery on 1 October does not. A heat pump placed in service on 31 December 2025 qualifies; the same unit installed a day later does not. The credits were not phased down — they stopped.

The health coverage tax credit did not need repealing. Section 35(b)(1)(B) has always defined an eligible coverage month as one beginning before 1 January 2022, so the credit lapsed by its own terms. The section remains in the Code in full, which is why it is still possible to read it and conclude the credit exists.

The saver’s credit itself is unchanged for 2026 apart from its annual income limits, which come from Notice 2025-67 rather than from the general inflation revenue procedure — a distinction worth remembering, because the retirement-related figures are published separately every autumn.

Exam focus

For the saver’s credit know the maximum, the three-band structure, that the base is per individual, that Roth contributions count, that a full-time student and a dependent are excluded, and that distributions in the testing period reduce the base. A computation is likely and it is simple once the band is right.

For excess social security withholding know the two-employer condition and what happens when there is only one employer. That single distinction is the whole question every time it appears.

For the elderly credit know that it exists, that its figures have never been indexed, and that nontaxable social security usually eliminates it. For the health coverage tax credit and the energy credits, know the termination dates — and be prepared for a question written before them, since these are the topics where dated material survives longest.

Check yourself

1. A married couple file jointly with adjusted gross income of $41,000. She contributed $3,000 to a 401(k) and he contributed $1,200 to a Roth IRA. What is the saver’s credit for 2026?

Answer: $2,000 is not right, and neither is 20 percent of anything. At $41,000 they are in the 50 percent band for a joint return. Her contributions are capped at $2,000 by IRC § 25B(a) and his are $1,200, so the base is $3,200 and the credit is $1,600, assuming no testing period distributions.

2. An employee worked for one employer all year and had social security tax withheld above the wage base. How is it recovered?

Answer: From the employer, not on the return. IRC § 6413(c)(1) gives a special refund only where the employee received wages from more than one employer, so no § 31(b) credit arises. The employer must refund the excess and furnish a corrected Form W-2.

3. A taxpayer paid for and completed a residential solar installation in March 2026. What credit is available under § 25D?

Answer: None. Section 25D(h) provides that the credit does not apply to expenditures made after 31 December 2025, following the amendment by Pub. L. 119-21 § 70506. The date of the contract is irrelevant.

4. A 61-year-old receiving Pension Benefit Guaranty Corporation payments asks about the health coverage tax credit. What is the answer?

Answer: It is no longer available. IRC § 35(b)(1)(B) requires an eligible coverage month to begin before 1 January 2022, so no credit has been available since taxable year 2021, whatever the taxpayer’s age or source of assistance.

5. Why does a taxpayer aged 70 with $22,000 of social security and a $4,000 pension get no credit under § 22?

Answer: Because the § 22(c)(2)(A) initial amount for a single individual is $5,000 and § 22(c)(3) reduces it by nontaxable social security. Benefits of $22,000 exceed the initial amount several times over, so the section 22 amount is zero before the § 22(d) adjusted gross income reduction is even reached. The figures have not been indexed since 1983.