7 Tax Credits and Deductions for Hourly Workers to Save on Taxes

• As an hourly worker, tax credits and deductions can save you money on your tax return or help you get a refund.
• The availability of tax credits and deductions increases if you have children, save for retirement, or pay out-of-pocket for college tuition. 
• In addition to federal tax credits and deductions, you may also be able to take advantage of state tax credits and deductions.
• You can save $15 on your TurboTax returns as a Payactiv member.

If you’re an hourly worker, it’s easy to keep your stress to a minimum during tax season. Filling out your paperwork can be anxiety-inducing, but there are many tax credits and deductions you can take that may result in a refund.

It’s possible to utilize non-refundable tax credits, which can bring your tax burden down to zero, and refundable credits, which can bring your tax burden down to $0 and put money back in your pocket. Plus, you can use tax deductions to lower the amount of your taxable income.

We’ve found the top seven tax credits and deductions to explore as an hourly worker. Discuss them with your tax professional to see which ones apply to your situation.

1. Earned Income Tax Credit (EITC/EIC)

The Earned Income Tax Credit (EITC or EIC) serves as a minimum wage subsidy and replaces legacy policies that previously supported low-income workers with children. It can be fully refundable and worth thousands of dollars. 

The credit can be quite low if you don’t have children. If you do have children, the amount gets dramatically larger, and you’ll have to ensure that you can legally claim them on your tax return. 

If you’re unmarried with children and qualify for the EIC, be aware that getting married could reduce your EIC benefits. 

2. Child Tax Credit

For every child you can legally claim on your 1040, you can claim a Child Tax Credit worth up to $2,000. This typically applies to children 17 years of age or younger. However, if your adult child or other relative is disabled and you claim them as a dependent, they can qualify for a reduced credit as well. 

The Child Tax Credit lowers your tax burden dollar for dollar. For example, if you claimed two children under age 17 and owed $1,500 in taxes with a $4,000 child tax credit, your tax credit would go down to $0. 

What about the remaining $2,500 left on your credit? Depending on your income and household structure, you can likely claim all or part of that as an Additional Child Tax Credit. This is refundable, so you could get the remaining credit paid back to you like you would with the EITC.

3. Child and Dependent Care Credit

The Child and Dependent Care Credit provides a non-refundable credit for expenses you paid to childcare providers (or care providers for qualified dependents.) You can claim a percentage of these expenses if you were working or looking for work while the outside care was occurring.

This credit only reduces your tax burden, meaning you won’t get any money refunded to you in cash. Fortunately, it can still make a meaningful dent in lowering the amount of taxes you owe. 

4. Education Credits

If you paid for higher education last year, you may qualify for a couple of different tax credits. 

The first is the American Opportunity Tax Credit, which can reduce your tax burden by up to $2,500. If your tax burden is already zero, you can claim up to 40% of the credit as refundable money. The maximum refundable amount is $1,000. 

Second, the Lifetime Learning Credit could be worth up to 20% of the first $10,000 you spend on higher education, or $2,000. This credit is not refundable but can lower your tax burden to $0.

Depending on your hourly pay, you may qualify for grants after filing your FAFSA. This will reduce the amount you have to pay for tuition. If you get grant funding and aren’t paying for school out of your own pocket, these tax credits and deductions won’t apply to you. 

5. Standard Deduction

When the Tax Cuts and Jobs Act (TCJA) passed in 2017, it raised the standard federal deduction to a level where it doesn’t make sense for most people to itemize deductions anymore. The standard deductions for the 2023 tax year include: 

• Single or Married Filing Separately: $13,850
• Head of Household: $20,800
• Married Filing Jointly: $27,700

If you are a single or unmarried parent claiming children or other qualifying dependents on your tax return, you’ll likely file as head of household.

6. Retirement Savings Contributions Credit (Saver’s Credit)

You might be able to claim a non-refundable credit for either 10%, 20%, or 50% of your contributions if you contributed to any of the following tax-advantaged investing accounts (credits depend on your income level): 

• Individual Retirement Account (IRA)
• 401(k), 403(b), 457(b), SARSEP or SIMPLE plan
• Thrift Savings Plans
• 501(c)(D)(18) plans
• An ABLE account in your own name

7. State and Local Taxes (SALT) Deduction

If you paid state or local taxes during the year and are itemizing your deductions, you can claim those taxes paid (up to $10,000) to lower your income. Your tax burden may go down accordingly. 

Final Word

It’s always wise to consult with a tax professional to ensure you’re taking advantage of all the credits and deductions available to you. Don’t forget that tax laws can change, and individual circumstances can significantly impact which credits or deductions you can utilize.

That said, these tax credits are worth exploring if you’re an hourly worker. They can help you reduce or eliminate your tax burden and may even put some money back in your pocket.

If you are a Payactiv member, you can save $15 when you file your return with TurboTax. This can help you simplify the filing process and ensure you take advantage of all possible deductions and credits.

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