There are 8 tax credits that could reduce a taxpayer’s tax bill or increase their tax refund. Read the list to know about them!
According to tax experts, there are ways to reduce a taxpayer’s federal tax bill or to receive an increase in tax refunds amidst inflation this 2023. These are called ‘tax credits’. Tax credits can lessen the amount of income tax a taxpayer owes to federal and state governments or even increase the payment they can receive in tax refunds, as reported by Blake.
EARNED INCOME TAX CREDIT
According to Blake, this 2023, earned income tax credit (EITC) provides a tax credit of up to $600 if a taxpayer is eligible and has no children. However, the tax credit will increase even more if a taxpayer has children of their own. For a household with one child, a taxpayer can receive $3,995. Households with two children can receive $6,604, while those with three or more children can receive $7,430. This is an increase from the maximum tax credit of $6,935 in 2022.
The Saver’s Credit is officially known as the Retirement Savings Contribution Credit. This tax credit provides taxpayers with as much as 50% of their retirement account contributions. This 2023, single filers will receive $36,500 which is an increase of $2,500 from 2022. Married couples who filed jointly will receive up to $73,000 which is an increase of $5,000 from 2022. However, to be able to receive the maximum tax credit of 50% of the retirement contribution, single filers must earn no more than $21,750 and joint filers must earn no more than $43,500.
CHILD TAX CREDIT
To date, the federal child tax credit has not been adjusted for inflation yet. This tax credit has remained at $2,000 per eligible child. To be eligible, a parent must make an adjusted gross income of less than $200,000 if filed individually or as the head of the household. However, if filers are married who filed jointly, the amount will increase to $400,000. For an income beyond the threshold, the tax credit will be reduced to $50 for every $1,000 of excess income.
For 2023, the adoption credit will be adjusted to $15,950 per child. This tax credit can be received after an adoption is finalized and the adopted child has been claimed as a dependent. This tax credit is intended to help adoptive parents with the expenses concerning the adopted child. To be eligible, a parent may adopt a U.S. citizen child or a child from another country.
CREDIT FOR THE ELDERLY AND DISABLED
This tax credit is for taxpayers who are aged 65 and older, retired due to total and permanent disability, and have received taxable disability income in 2022. To be eligible, taxpayers must also have an adjusted gross income, nontaxable Social Security pensions, or disability income of $3,750 to $7,500.
LIFETIME LEARNING CREDIT
The lifetime learning credit is for an eligible student’s tuition and related expenses at educational institutions. This tax credit can help a student pay for their undergraduate, graduate, and professional degree courses. This 2023, the tax credit can be received up to $2,000 per tax return. There is no limit on the extent of years this tax credit can be claimed.
AMERICAN OPPORTUNITY TAX CREDIT
The American opportunity tax credit is a tax credit for the expenses paid by a student toward the first four years of their higher education. An eligible student can receive a maximum yearly credit of $2,500. If the tax credit reduces the amount of the student’s tax bill to zero, 40% of any remaining tax credit, with a maximum amount of $1,000, will be refunded.
ENERGY TAX CREDIT
This 2023, a tax credit for those who own electric vehicles will arrive. For new vehicles, a single filer could receive a $7,500 discount if they make an income less than $150,000. For joint filers, they must make less than $300,000. To be eligible, a car must cost no more than $55,000 and a van or pickup truck no more than $80,000, as reported by Blake.