01/24/2024
Claim All Available Tax Credits Available To You!
Learn all about how to maximize your Tax Refund:
Credits are another way to reduce your taxable income. Check whether you qualify for any of the tax credits listed below.
Earned Income Tax Credit
The earned-income tax credit (EITC) is a refundable tax credit available to low-income workers. For 2022, the EITC can be claimed by any low-income worker with a dependent child. It is also available to childless, low-income workers who have a principal residence in the U.S. for more than half the year and who are 19 or older, specified students age 24 or older, or former foster youth and homeless youth age 18 or older. If you are claimed as a dependent on another taxpayer's return, you are not eligible to claim the EITC.
The credit percentage, earnings cap, and credit amount vary depending on your filing status, your number of dependent children, and your level of earned income. For instance, the maximum Earned Income Tax Credit amount for tax year 2023 is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022.
To be eligible, you must have earnings but cannot have investment income in excess of $10,300. The credit reduces the amount of tax owed on a dollar-for-dollar basis. If the amount of this credit is greater than the amount of tax that you owe, you may be eligible for a refund.
Child Tax Credit
The American Rescue Plan Act (ARPA) increased the amount of the Child Tax Credit, made it fully refundable, and provided for its distribution in advance payments to taxpayers for 2021. The Child Tax Credit changes, however, expired at the end of 2021 and weren't extended by the U.S. Congress. As a result, the Child Tax Credit for 2022 and 2023 reverted back to $2,000 per child under age 17 unless it is extended by new legislation.
The maximum refundable portion of the credit in 2023 is $1,600, up from $1,500 in 2022.
Child and Dependent Care Tax Credit
The Child and Dependent Care Tax Credit (CDCTC) is a credit that helps taxpayers cover the expenses of caring for a child who is age 12 or under as of the year's end, a disabled spouse, or a qualified dependent (collectively, child care expenses) while working or looking for work. The credit is a percentage of a taxpayer's earned income and phases out for taxpayers with AGIs above $400,000. No credit is allowed at an AGI of $438,000 and higher.
In 2021, the rate of the credit increased for low- and moderate-income workers but decreased for higher-income ones. The changes are the same for all taxpayers regardless of filing status. For workers with AGIs below $125,000, the percentage is 50%; for AGIs between $125,000 and $183,000, the CDCTC phases out by one percentage point per $2000 (or fraction thereof) above $125,000, until it reaches 20 % at AGI of $183,000. Between AGIs of $183,000 and $400,000, the percentage remains at 20%. Above an AGI of $400,000, the CDCTC phases out by one percentage point per $2000 (or a fraction thereof) until it reaches 0% at an AGI of $438,000.
The 2021 enhancements to the CDCTC applied only for one year. Unless extended by Congress, the CDCTC for 2022 and 2023 will be nonrefundable and revert to its prior rules: lower expense ceilings, a 35% rate for AGIs under $15,000, and a phaseout to 20% at an AGI of $43,000.
Adoption Credit or Exclusion
Taxpayers who adopt a child under the age of 18 or a disabled individual are entitled to tax benefits for qualified, reasonable, and necessary expenses incurred for the adoption. The maximum tax credit for such expenses is $15,950 per child for 2023. If a taxpayer receives employer-provided benefits for such expenses, up to $15,950 of benefits per child can be excluded from income. Benefits over that amount are taxable income.
Taxpayers can claim both the credit and exclusion for adoption expenses but cannot claim the same expenses for both benefits. Special rules apply depending on whether or not the adoptee is a U.S. resident. For some adoptions of special-needs children, tax benefits are allowed even if the taxpayer has no qualified expenses.
Tax Credits for Education Expenses
Two types of tax credits, the Lifetime Learning Credit and the American Opportunity Tax Credit, provide tax benefits for qualified educational expenses for postsecondary education. The rules for these credits differ. The IRS provides a comparison chart online. It also provides an extensive list of FAQs to help you determine which credit to claim.
Lifetime Learning Credit
The Lifetime Learning Credit is available to taxpayers in the United States who have incurred qualified educational expenses, including tuition, fees, and required books for postsecondary education at a qualified institution within a given tax year. The educational program must lead to a degree or other recognized education credential.
In order to claim the full credit, your modified adjusted gross income (MAGI) for the tax year 2023 must be $80,000 or less if you file as an individual. Your income must be $160,000 or less if you file jointly. Individual taxpayers with MAGIs of at least $90,000 or couples filing a joint return with MAGI of at least $180,000 do not qualify for the credit.
The credit is phased out if your modified adjusted gross income exceeds those amounts. This means you cannot claim the $2,000 credit at all.
American Opportunity Tax Credit
The American Opportunity Tax Credit is a credit for qualified education expenses paid by an eligible student who is the taxpayer, the taxpayer's spouse, or the taxpayer's dependent. The maximum annual credit is $2,500 per eligible student. To qualify, the student must be enrolled at an eligible educational institution at least half-time for at least one academic term for the given tax year. In some cases, this credit may be partially refundable. If the credit reduces the tax liability to zero, an additional 40% of the unused otherwise allowable credit, up to $1000, is refundable to the taxpayer.
The amount of the American Opportunity Tax Credit is phased out if your MAGI exceeds $80,000 if single ($160,000 if you file a joint return). You can't claim an American Opportunity Tax Credit if your MAGI is $90,000 or more if single ($180,000 or more if you file a joint return).
If you are eligible for any of these tax credits, they can substantially reduce or even eliminate the amount of taxes that you owe. They may also increase the amount of your tax refund. In some cases, taxpayers may be eligible for a refund even if there were no taxes withheld from their income for the year due to these tax provisions.
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