As tax season approaches, you could save money on your tax bill or get a bigger refund thanks to federal tax credits. While deductions are also useful, credits offer the advantage of cutting your tax liability directly. In some cases, they’re also refundable, giving you some money back even with a zero tax liability.
While a tax professional can help you explore all the options available, take a look at these six popular tax credits to see if you might qualify.
1. Saver’s Credit
If you’ve put money in an IRA, 401(k), 403(b) or other eligible retirement account, the Saver’s Credit could get you a tax credit worth between 10% and 50% of your 2023 contribution amount. Topping out at $1,000 for single filers and $2,000 for joint filers, the specific amount depends on your contribution, adjusted gross income (AGI) and filing status.
You won’t get this nonrefundable credit if your AGI exceeds $36,500 as a single filer or $73,000 as a joint filer. Additionally, you won’t qualify if someone claims you as a dependent or you were a full-time student for at least five months in 2023.
2. Earned Income Tax Credit
For those with moderate and low incomes, the Earned Income Tax Credit (EITC) is worth anywhere from $600 for filers without qualifying children to $7,430 with three or more qualifying children. It requires receiving earned work income and not exceeding the AGI thresholds based on your filing status and number of qualifying children. Plus, your 2023 investment income must not exceed $11,000.
This refundable credit is usually limited to those between the ages of 25 and 64, and you won’t qualify if you’re someone’s dependent. Since several rules apply and figuring out your eligibility can get tricky, the IRS offers the EITC Assistant to guide you.
3. Child Tax Credit
If you have any children or other qualifying relatives younger than 17, you could get a maximum of $2,000 for each through the Child Tax Credit (CTC). The IRS lists several rules the qualifying child has to meet for you to get the nonrefundable credit. For example, you likely can’t get it if the child lived with someone else for most of the year.
Modified AGI limits of $200,000 for single filers and $400,000 for joint filers apply to get the full amount. You won’t get anything with a modified AGI of $240,000 filing single or $480,000 filing jointly. The IRS also offers the refundable Additional Child Tax Credit that could apply if your CTC amount exceeds the taxes you owe. Once the CTC has reduced your tax liability to $0, the Additional Child Tax Credit can result in a refund of up to $1,600 for each child.
4. Child and Dependent Care Credit
The Child and Dependent Care Credit can offer some financial relief if you’ve incurred care costs for a child age 12 or younger because of your work needs. Expenses for other eligible people, including your spouse or parent, can qualify too as long as they can’t care for themselves.
Limits for eligible expenses are $3,000 for one person and $6,000 for multiple people. The IRS looks at your earned income to determine whether the nonrefundable credit will be worth between 20% and 35% of these costs. To qualify, you can’t file separately from your spouse. The IRS offers this credit eligibility checker for guidance.
5. American Opportunity Tax Credit
The American Opportunity Tax Credit (AOTC) is for tax filers and their dependents who studied at least half-time at eligible postsecondary schools and haven’t attended for more than four years. The IRS offers a dollar-by-dollar credit for the first $2,000 in expenses and then 25% of an additional $2,000 in expenses. Each student can get a maximum of $2,500, with 40% of it refundable.
The student must have been in a qualifying program and not already received the credit for four years. Modified AGI limits for the maximum amount are $80,000 for single filers and $160,000 for joint filers. You can’t claim the AOTC at all with a modified AGI exceeding $90,000 as a single filer or $180,000 as a joint filer. Check this IRS tool to check your eligibility.
6. Lifetime Learning Credit
Getting the Lifetime Learning Credit (LLC) is possible if you’ve paid for eligible higher education costs but don’t meet the stricter AOTC requirements. It’s a nonrefundable credit that applies to the first $10,000 spent during the year. The maximum credit is the lesser of 20% of your eligible expenses or $2,000. You can claim it each year you qualify.
There’s flexibility as long as the courses were taken at an eligible school for one academic period or more. It can work for courses at any level and doesn’t require enrollment in a degree program. However, you’ll need to meet the income criteria to get even a partial LLC amount. The modified AGI must be less than $90,000 for single filers or $180,000 for joint filers.
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