It’s important for taxpayers to be aware of these tax credits in 2023 for maximum savings.
What are tax credits and how it works
Tax credits directly deduct money from the federal income taxes that you owe. This means each dollar you receive in tax credits is a dollar that you save in taxes. According to CNET, tax credits are a powerful tool for reducing your tax bill, as they directly reduce the amount of tax you owe rather than simply reducing your taxable income. They are classified as either nonrefundable, fully refundable, or partially refundable.
Tax credits in 2023 for Parents and Families
Child Tax Credit (CTC): In 2023, the credit is worth up to $3,000 per child under 18 years old, with an additional $600 credit available for children under age 6. According to a published article in Nerdwallet, you can claim the child tax credit on your Form 1040 or 1040-SR. You’ll also have to fill out Schedule 8812 (“Credits for Qualifying Children and Other Dependents”), which is submitted with your 1040.
Adoption credit: If you adopted a child or started the adoption process in 2022, you are eligible for up to $14,980 back for qualified expenses, including travel costs and court fees. You can claim the adoption credit by filing Form 8839, “Qualified Adoption Expenses.”
Child and dependent care credit: This tax credit supports parents who give care to those who are physically or mentally disabled ages 13 and below. Depending on income, it gives 20 to 35% of your money back on $3,000 in expenses for one qualifying dependent or $6,000 for two or more. To claim this credit, you’ll need to add your dependents and their Social Security numbers to your 1040 form and complete IRS Form 2441, “Child and Dependent Care Expenses.”
Earned Income Tax Credit (EITC): This tax credit is created to help low- to moderate-income workers, particularly those with children. Eligibility for the credit is based on your income, filing status, and the number of qualifying children you have. The credit can be worth up to $6,660 in 2023, depending on your circumstances.
Tax credits in 2023 for Education Expenses
American Opportunity Tax Credit (AOTC): This credit is open to taxpayers who are spending for higher education expenses. This can be worth up to $2,500 per student for up to four years of post-secondary education. To qualify, the student must be enrolled at least half-time in a program leading to a degree or credential.
Lifetime learning credit: The LLC offers 20% back of the first $10,000 spent on higher education expenses at eligible institutions. The student can either be your spouse, yourself or an eligible dependent, as long as you paid the bills. Regardless of how many students you support, the maximum benefit per return is $2,000.
Tax credits in 2023 for Healthcare
Premium tax credit: The premium tax credit helps individuals and families pay for health coverage bought through the Health Insurance Marketplace. It’s usually for that earning between 100% to 400% of the federal poverty guidelines but for 2021 and 2022, the upper limit is removed. Income information is needed to estimate the credit and advance payments are available. Form 8962 is required to claim the credit, and if the advance payments exceed eligibility, the excess must be repaid.
These tax credits in 2023 will help taxpayers make the most of their taxes. It is crucial for taxpayers to be aware and be updated about these tax credits in 2023, especially during this time when inflation rates are increasing and many are struggling to make ends meet.