In light of the U.S. government’s announcement that certain states may not receive a stimulus similar to the one provided in 2021, some taxpayers remain eligible for various benefits, falling primarily under two categories: tax deductions and tax credits.
Distinguishing between the two, a tax credit directly reduces the amount of tax owed, dollar for dollar, while a tax deduction lowers taxable income, offering a smaller benefit. It’s crucial to note that tax deductions are more beneficial for those who itemize their deductions, making sense for individuals with substantial deductible expenses.
The array of tax payments eligible for collection includes:
Child Tax Credit (CTC)
The CTC provides a tax break for families with qualifying children. Eligible individuals can claim the CTC for each qualifying child under the age of 17 at the end of 2023, potentially receiving up to $2,000 per child, with $1,600 of the credit being refundable.
Child and Dependent Care Credit
Those who incur child care expenses for a child under 13 or for a dependent unable to care for themselves may qualify for this credit, allowing up to 35 percent of $3,000 for one dependent or $6,000 for two or more dependents.
American Opportunity Tax Credit (AOC)
The AOC permits claiming the first $2,000 spent on tuition, books, equipment, and school fees, plus 25 percent of the next $2,000, totaling $2,500. Notably, living expenses and transportation do not qualify.
Lifetime Learning Credit
Allowing a 20 percent claim on the first $10,000 paid for tuition and fees, the Lifetime Learning Credit has a maximum of $2,000 and doesn’t cover living expenses or transportation, focusing on books or supplies essential for coursework.
Student Loan Interest Deduction
Borrowers who paid interest on student loans can deduct up to $2,500 from their taxable income.
Adoption Credit
This non-refundable tax exemption aids in covering qualified adoption costs per child, capped at $15,950 for the tax year 2023.
Earned Income Tax Credit (EITC)
Supporting low- to moderate-income workers and families, the EITC ranges from $600 to $7,430 based on factors like the number of children, marital status, and income.
Saver’s Credit
Contributions to employer retirement plans, Individual Retirement Arrangements (IRAs), or Achieving a Better Life Experience (ABLE) accounts can qualify for this credit, ranging from 10 to 50 percent based on contributions and adjusted gross income.
Residential Clean Energy Credit
Equal to 30 percent of costs for new, qualified clean energy property installed between 2022 and 2032, this credit has no annual or lifetime dollar limit, except for fuel cell property.
Electric Vehicle Tax Credit
Individuals who placed a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) in service may qualify for a clean vehicle tax credit. Sellers must provide vehicle qualification information at the time of sale, and failure to register with the IRS may render the vehicle ineligible for the credit.
