The information in this article is up to date for tax year 2023 (returns filed in 2024).
Claiming the right tax credits can wipe out your tax bill or maximize your refund. Many credits aim to help families, low-income earners and students. Before you file your tax return, it’s a good idea to familiarize yourself with what’s available so you don’t miss anything. Keep reading to find out what a tax credit is, how it works and which ones you may qualify for this year.
What is a tax credit?
Tax credits give you a dollar-for-dollar reduction on the taxes you owe. They are usually designed to reward certain behaviors or help offset expenses you pay during the year. For example, sending your kids to daycare, going to college, saving for retirement, or buying an electric vehicle. Each tax credit has its own set of requirements that you must meet to claim them.
Typically, tax credits fall into two categories – refundable and nonrefundable. The key difference is that a nonrefundable tax credit can only lower your tax bill. A refundable credit is more beneficial because it can reduce the taxes you owe and produce a refund. For example, if you owe $100 and qualify for a $300 refundable credit, you can get a $200 tax refund.
What credits can I claim on my taxes?
Here’s an overview of some of the most popular tax credits you can claim on your tax return.
Earned Income Tax Credit
Some workers can claim the Earned Income Tax Credit and get a much-needed financial boost. To qualify, you must earn less than the adjusted gross income and investment income limits. For tax year 2023, the maximum amounts are as follows.
| Children Claimed | Single, Head of Household or Qualifying Widow(er) | Married Filing Jointly |
|---|---|---|
| Zero | $17,640 | $24,210 |
| One | $46,560 | $53,120 |
| Two | $52,918 | $59,478 |
| Three | $56,838 | $63,398 |
The investment income limit is $11,000.
The maximum Earned Income Tax Credit you can receive is:
- $600 if you don’t have any children
- $3,995 with one qualifying child
- $6,604 with two qualifying children
- $7,430 with three or more qualifying children
Child Tax Credit
The Child Tax Credit is worth $2,000 for each dependent on your tax return that’s aged 16 or younger. The child can be your son, daughter, stepchild, or even your grandchild. Up to $1,600 of the credit is refundable. Your credit amount may be reduced if your modified adjusted gross income is more than $200,000 ($400,000 for joint filers).
Note: Lawmakers have proposed a bipartisan tax package which would expand the Child Tax Credit. If it passes, the refundable portion of the credit would increase to $1,800 for tax year 2023, $1,900 for 2024, and $2,000 for 2025.
Credit for Other Dependents
Some parents continue to take care of their kids through college. If you have an older dependent that doesn’t qualify for the Child Tax Credit or Additional Child Tax Credit, you may be able to claim the Credit for Other Dependents. It is worth $500 per dependent. However, you may receive less than that if your modified adjusted gross income exceeds $200,000 ($400,000 for joint filers).
Child and Dependent Care Credit
Most parents don’t have the luxury of working from home. Workers who pay someone to care for their child or dependent with disabilities while they go to work, may be able to claim the Child and Dependent Care Credit. To qualify, your expenses must be for a child aged 12 or younger, your spouse or another dependent who is mentally or physically unable to care for themselves. You can claim up to $3,000 in expenses for one qualifying person and $6,000 for 2 or more people. The credit amount ranges from 20-35% of your expenses depending on your adjusted gross income. You must have the care provider’s name, address, and taxpayer identification number to claim the credit.
The Saver’s Credit
Get rewarded for saving for your future. If you contribute to an IRA or employer-sponsored retirement plan, you can claim the Saver’s Credit. Depending on your AGI, the credit is worth 50%, 20% or 10% of your contributions up to $2,000 ($4,000 for joint filers). In other words, the maximum you can receive is $1,000 ($2,000 for joint filers). Here’s how much the 2023 Saver’s credit may be worth for you.
| Credit Rate | Single, Married Filing Separately or Qualifying Widow(er) | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 50% of your contribution | $0 – $21,750 | $0 – $43,500 | $0 – $32,625 |
| 20% of your contribution | $21,751 – $23,750 | $43,501- $47,500 | $32,626 – $35,625 |
| 10% of your contribution | $23,751 – $36,500 | $47,501 – $73,000 | $35,626 – $54,750 |
| 0% of your contribution | $36,501 and up | $73,001 and up | $54,751 and up |
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American Opportunity Tax Credit
During the first four years of college, students (or their parents) can claim the American Opportunity Tax Credit for paying tuition and fees. The maximum credit is $2,500 per student. If the credit reduces your tax bill to zero, you can receive up to $1,000 of the remaining portion as a tax refund. Students must be:
- Pursuing a degree at an eligible institution
- Enrolled for at least part time for one semester
- Have no felony drug convictions
To claim the full credit, your modified adjusted gross income (MAGI) must be less than $80,000 ($160,000 for joint filers). You can receive a reduced credit if your MAGI falls between $80,000 but less than $90,000 (over $160,000 but less than $180,000 for joint filers). Once your MAGI is over $90,000 ($180,000 for joint filers), you no longer qualify.
Lifetime Learning Credit
If you’re looking for a new job or hoping to get a promotion, getting more education can make you a more attractive candidate. Plus, taxpayers who pay for college expenses can claim the Lifetime Learning Credit. You can claim it for you, your spouse or dependent. The Lifetime Learning Credit can reduce your tax bill by up to $2,000 per tax return. However, the credit amount gradually phases out if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 for joint filers). You no longer qualify once your MAGI exceeds $90,000 ($180,000 for joint filers).
Clean Vehicle Credit
Taxpayers who purchased a new electric vehicle (EV) or fuel cell vehicle (FCV) in 2023 may qualify for the Clean Tax Credit. It is worth up to $7,500 on your federal tax return. To claim the credit, your modified adjusted gross income (MAGI) must be less than:
- $300,000 for married couples filing jointly
- $225,000 for heads of households
- $150,000 for all other filers
If you purchased a pre-owned electric vehicle for $25,000 or less, you may be able to claim the Used Clean Vehicle Tax Credit. It is worth up to $4,000. To qualify, your MAGI must be less than:
- $150,000 for married filing jointly or a surviving spouse
- $112,500 for heads of households
- $75,000 for all other filers
You can find out if your vehicle is eligible for either credit by visiting fueleconomy.gov.
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The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.
