When it comes to tax time, most filers focus on federal deductions and credits, often overlooking the significant savings available through state-level tax credits. Each U.S. state has its own set of tax rules and incentives, many of which go underutilized due to lack of awareness. Some of these lesser-known credits can dramatically reduce your state tax bill—or even result in a refund—especially for families, students, low-income individuals, and environmentally conscious taxpayers.
This guide explores a range of state-level tax credits that you may be eligible for but may not have considered, categorized by common taxpayer situations. Understanding and claiming these credits can make a substantial difference in your total tax liability.
1. Earned Income Tax Credits (State-Level Versions)
Over 30 states and the District of Columbia offer their own versions of the Earned Income Tax Credit (EITC), modeled after the federal EITC. These credits are designed to assist low-to-moderate income working families and individuals. While federal EITC can be significant, some state EITCs are refundable and equal to 30% or more of the federal credit.
Example: California’s CalEITC offers up to several thousand dollars in refundable credits, especially if you have children under age 6 and qualify for the Young Child Tax Credit.
2. State Child and Dependent Care Tax Credits
Many states offer credits for child and dependent care expenses that mirror or supplement the federal Child and Dependent Care Credit. These state credits can be refundable or nonrefundable and typically allow you to claim a percentage of the expenses up to a cap.
Example: New York offers a refundable credit worth up to 110% of the federal amount depending on income.
3. K-12 Education Expense Credits
Some states provide tax breaks for costs associated with your child’s K-12 education, including school supplies, tuition for private school, tutoring, and homeschooling materials.
Example: Minnesota and Illinois offer K-12 Education Expense Subtraction and Credit programs that can result in hundreds of dollars in savings.
4. Renters’ Credits
Certain states offer property tax relief to renters through special credits or refunds. These credits are designed to reflect the fact that landlords pass property taxes on to tenants through rent payments.
Example: In Wisconsin, renters may claim a portion of rent paid as a property tax equivalent and receive a refund of up to $300.
5. College Tuition and Loan Repayment Credits
Beyond federal credits like the American Opportunity Credit, many states offer tuition-related tax relief. These credits may be based on tuition paid to in-state institutions or student loan payments made by graduates or their parents.
Example: New York’s College Tuition Credit allows a credit or deduction for tuition paid to eligible postsecondary institutions. Maine offers a tax credit for student loan repayment under the Educational Opportunity Tax Credit (EOTC).
6. Retirement Income Exclusion and Credits for Seniors
Some states provide additional credits or exemptions for retirement income such as Social Security, pensions, or IRA withdrawals, especially for seniors over 65. In addition to excluding this income, they may provide credits based on age, disability, or income thresholds.
Example: Georgia offers a significant retirement income exclusion, and South Carolina allows seniors to deduct up to $15,000 of retirement income.
7. Solar and Renewable Energy Credits
As part of clean energy initiatives, states often provide tax credits or rebates for homeowners who install solar panels, wind turbines, energy-efficient appliances, or weatherization improvements.
Example: Massachusetts offers a 15% credit (up to $1,000) for solar energy system installation. New York’s Solar Energy System Equipment Credit is worth up to $5,000.
8. Low-Income Housing or Homestead Credits
States with high housing costs may provide relief through homestead credits or low-income housing credits. These can reduce property tax bills or offer income-based reimbursements.
Example: Michigan’s Homestead Property Tax Credit refunds part of your property tax or rent based on income. Missouri offers a similar Property Tax Credit (Circuit Breaker) program for seniors and disabled residents.
9. Adoption and Foster Care Credits
In addition to the federal Adoption Tax Credit, some states provide credits to adoptive parents or those providing foster care. These can offset adoption-related expenses or support the cost of providing foster care.
Example: Utah offers a $1,000 refundable tax credit for each child adopted during the tax year.
10. Volunteer Firefighter and EMT Credits
To incentivize public service, some states offer tax credits to volunteer firefighters, emergency responders, or reserve officers. These are often flat credits per year of active service.
Example: New York provides a $200 refundable credit to eligible volunteer firefighters and ambulance workers.
11. Historic Preservation and Rehabilitation Credits
If you own a qualifying historic property and make approved renovations or restorations, you may be eligible for a significant state tax credit in addition to the federal historic preservation credit.
Example: Missouri and North Carolina offer tax credits ranging from 20–25% of qualified rehabilitation expenses for certified historic properties.
12. Working Families Credits
Some states provide refundable credits specifically targeting working families below certain income thresholds. These may combine elements of the federal EITC, childcare credits, and child tax credits.
Example: Washington offers a Working Families Tax Credit worth up to $1,200 depending on household size and income, even though it doesn’t have a state income tax.
How to Claim These Credits
Each state has its own process for claiming tax credits. Most are filed through the state’s income tax return (e.g., Form 540 in California, Form IT-201 in New York). Be sure to:
- Check your state’s Department of Revenue website for updated forms and instructions.
- Gather supporting documentation such as receipts, school records, adoption paperwork, or proof of energy installations.
- Review eligibility criteria, including income thresholds and residency requirements.
Tips for Maximizing Your State Tax Credits
- Use reputable tax software that includes state credit prompts.
- Consult with a state-specific tax preparer or CPA for complex cases.
- Don’t assume your federal tax preparer automatically checks state credits—some are state-only and easily missed.
- Plan ahead for next year by tracking expenses that could qualify for these credits.
Conclusion
State-level tax credits can be incredibly valuable tools for reducing your tax liability and increasing your refund. However, they’re often missed due to lack of publicity or understanding. Whether you’re a student, parent, renter, retiree, or small business owner, there’s likely a credit available in your state that could benefit you.
Take time to research what your state offers and ensure you’re not leaving money on the table at tax time. A little effort can lead to hundreds—or even thousands—of dollars in savings you didn’t realize you qualified for.
