When it comes to tax season, most people focus primarily on their federal returns, often overlooking valuable opportunities to increase their state tax refunds. While federal tax credits like the Earned Income Tax Credit (EITC) and Child Tax Credit receive a lot of attention, many states offer their own unique credits—some of which are refundable and can significantly boost your refund. In this detailed guide, we’ll explore how to maximize your state tax refund by identifying and claiming often-overlooked state-level credits and deductions.
Understanding State vs. Federal Credits
Tax credits directly reduce the amount of tax you owe. Some are nonrefundable (they reduce your tax liability to zero but no further), while others are refundable (they can generate a refund even if you owe no tax). Each state has its own tax code, and while some credits mirror federal ones, others are entirely unique. Being aware of what’s available in your state can mean the difference between a modest refund and a much larger one.
1. State Earned Income Tax Credit (EITC)
Many states offer their own version of the federal EITC, which provides support to low-to-moderate income workers. Typically, the state credit is calculated as a percentage of the federal EITC and may be refundable.
- California: Offers CalEITC and Young Child Tax Credit for eligible families
- New York: Provides 30% of the federal EITC as a refundable state credit
- Oregon: Offers 9% of the federal EITC, with an additional bump for families with young children
Even if you owe no tax, these credits could trigger a state refund if you file.
2. State Child and Dependent Care Credit
Most parents are aware of the federal child and dependent care credit, but many states offer similar (or more generous) versions. These credits help cover the cost of daycare, after-school care, and other qualifying expenses.
- Colorado: Offers a refundable credit worth up to 50% of your federal credit
- New Mexico: Offers a sliding-scale credit based on income and care expenses
- New York: Provides up to $3,000 in care-related credits
To qualify, you generally need to have earned income and care costs related to employment or job-seeking.
3. Education and Tuition Credits
Several states offer tax credits or deductions for education expenses, including tuition, books, and school supplies. These can apply to higher education, K-12, or even vocational programs.
- Minnesota: Offers both a deduction and a refundable credit for K–12 expenses like supplies and tutoring
- Indiana: Offers a College Credit for contributions to Indiana 529 plans
- New York: Offers a tuition credit of up to $400 for eligible higher education expenses
Keep receipts for all eligible educational purchases made throughout the year to substantiate your claim.
4. Property Tax and Renters’ Credits
Some states offer tax credits to homeowners and renters to offset property taxes, even if those individuals don’t itemize their deductions.
- Missouri: Offers a “Circuit Breaker” credit for low-income seniors and disabled individuals
- Wisconsin: Offers a Homestead Credit that benefits renters and homeowners
- Massachusetts: Offers the “Senior Circuit Breaker” for eligible senior homeowners and renters
These credits are often income-based and require proof of rent or property tax payments. They can be overlooked, especially by older adults who may not file unless prompted.
5. Retirement Contributions Credit
States like South Carolina, Montana, and Colorado offer tax incentives or deductions for contributing to retirement accounts such as IRAs and 401(k)s. Some mirror the federal Saver’s Credit, while others provide unique state-level benefits for retirees.
Check whether your state allows you to deduct contributions or offers credits to encourage saving for retirement or drawdowns during retirement age.
6. Health-Related Credits and Deductions
Certain states offer credits for health-related expenses, such as long-term care insurance premiums or enrollment in state health exchanges.
- Maryland: Offers a Long-Term Care Insurance Credit of up to $500
- California: Offers subsidies through its state health marketplace that may impact your tax credit eligibility
- Montana: Offers deductions for premiums paid on qualified health insurance
If you are self-employed or retired and paying for your own insurance, these benefits can provide valuable tax relief.
7. Credits for Energy Efficiency and EVs
Energy-efficient home improvements and the purchase of electric vehicles may qualify for state credits in addition to federal ones.
- Oregon: Offers rebates and credits for electric vehicle purchases and home solar systems
- Maryland: Offers EV charger installation credits and sales tax exemptions on qualified vehicles
- New York: Provides energy efficiency credits for home improvements like insulation and HVAC systems
Always check for state-level green energy incentives, especially if you’ve made upgrades or purchased eco-friendly vehicles in the past year.
8. 529 College Savings Plan Contributions
Contributions to your state’s 529 plan can often be deducted from your state income, even if you’re not claiming a federal deduction. Some states even offer a refundable credit.
- Illinois: Offers up to $10,000 ($20,000 for joint filers) in deductions
- Virginia: Offers up to $4,000 per account, per year
- Indiana: Offers a 20% refundable credit on contributions, up to $1,500
These benefits directly reduce your taxable income or increase your refund, and they’re often available even if you’re not the plan beneficiary.
9. Volunteer and Public Service Credits
Some states offer tax credits for volunteering, firefighting, EMT work, or serving in local government.
- New York: Offers the Volunteer Firefighters and Ambulance Workers Credit
- Pennsylvania: Offers local tax credits for emergency service volunteers
- Iowa: Offers a Firefighter/EMS credit of $100 per year
These credits recognize and reward civic service and can be easy to claim with basic documentation or certification from your department.
10. Credits for Low-Income or Elderly Taxpayers
States often have special credits for low-income residents, seniors, or those with disabilities. These may not require any tax liability to be refundable.
- Georgia: Offers a low-income credit based on adjusted gross income and family size
- Vermont: Offers a credit for the elderly and disabled, based on income and public assistance received
- New Mexico: Offers a rebate for low-income taxpayers regardless of filing status
These credits often go unclaimed because eligible individuals do not file tax returns. Encouraging eligible family members to file—even with no income—can unlock significant refunds.
Tips to Ensure You Don’t Miss Out on State Credits
- Read your state’s tax booklet: Most include a list of all available credits and deductions
- Use tax software: Most programs prompt you for applicable credits automatically
- Keep good records: Receipts, bills, donation letters, and tuition forms support your claims
- File even with no income: Refundable credits can generate cash refunds even if no tax is owed
- Consult your state’s Department of Revenue website: It’s the most current source for updated rules and benefits
Conclusion
Maximizing your state tax refund isn’t just about income and withholding—it’s about taking full advantage of the credits your state offers. From child care to retirement savings, education to energy efficiency, there are a multitude of overlooked credits that could put more money in your pocket. Review your state’s tax rules carefully, document your expenses thoroughly, and don’t hesitate to consult a tax professional or use robust software to ensure no dollar is left behind. A little extra effort could mean hundreds—or even thousands—of dollars added to your state tax refund.
