End-of-Year Tax Tips – Tax Credits

By Mitchell J. Smilowitz, CPA

Welcome to tax filing season! To begin preparing for your 2023 taxes, the JRB has assembled a two-part series of articles to get you started. This, the second article in our series, describes federal tax credits for which JRB participants are most likely to be eligible. The first article discusses tax deductions.

While tax deductions reduce your Adjusted Gross Income (AGI), tax credits reduce the amount of tax you pay and/or increase your tax refund. For more information on the difference between tax deductions and tax credits, see Tax Credits and Tax Deductions: What’s the Difference.

The rules governing tax credits can be complex. It’s always wise to consult a tax professional for more information before claiming a tax credit. Note also that the federal government offers many more tax credits than we are able to describe in this article.

  • Child Tax Credit. For 2023, the child tax credit is worth $2,000 per qualifying dependent child under age 17 if your AGI is $400,000 or below (married filing jointly) or $200,000 or below (all other filers). If your AGI exceeds the above limits, your credit is reduced. If you qualify for the Child Tax Credit but can't take full advantage because you don't owe taxes or owe less than your credit amount, you may be eligible for a partial refund. However, the refundable portion is limited to $1,600.
  • Child and Dependent Care Credit. This tax credit helps parents or caregivers cover the cost of qualified care expenses. These include day care for a child under 13 or dependent care for a spouse, parent or other dependent unable to care for themselves. To qualify for the credit, a taxpayer must have earned income throughout the year and used the care expenses so that they could work or seek employment. The child and dependent care credit is worth 20% to 35% up to $3,000 (for one qualifying dependent) or $6,000 (for two or more qualifying dependents). The percentage you can claim depends on your AGI.
  • Education Tax Credits. You may be eligible for both of these education tax credits, but restrictions apply. Check with your tax advisor.
    • The American Opportunity Tax Credit allows eligible taxpayers (student, parent or spouse) to claim an Education Tax Credit. The Credit covers 100% of the first $2,000 spent on qualified education expenses (such as tuition, fees and textbooks) and 25% of the next $2,000 for a total tax credit of $2,500 for each qualifying student. If the credit amount exceeds the tax owed for the year, you may be eligible for a partial refund.
    • The Lifetime Learning Credit covers qualified tuition and related expenses. To be eligible, you or your dependent must be: 1) enrolled or taking courses; 2) at an eligible educational institution; 3) to get a degree, recognized education credential or to improve job skills and 4) for at least one academic period during the tax year. The credit equals 20% of the first $10,000 of qualified education expenses or a maximum of $2,000 per return. This credit is not refundable. There are income limits.
  • Clean Vehicle Tax Credit. If you purchased a new or used electric or fuel cell vehicle during 2023, you may be eligible for a federal tax credit. The credit amount varies by vehicle model and year.
  • Saver’s Credit. You may be able to claim up to a $2,000 tax credit for retirement contributions, including contributions made to your JRB retirement account. The credit is limited to married couples with an AGI of $73,000 and below ($54,750 for heads of household and $36,500 for all other filers).

Get Help Filing Your Taxes

The IRS Free File program offers free, guided tax preparation online. The program, delivered via a public-private partnership, is available to taxpayers with an AGI of $73,000 or less. You may also be eligible for free tax help at a local Volunteer Income Tax Assistance Center (VITA), generally available to people who make $60,000 or less, people with disabilities or those with limited English. Those 60 years and older can also get help via Tax Counseling for the Elderly (TCE). You can locate a nearby VITA or TCE site on the IRS website.

Those with more complex tax returns or those with specialized tax needs, such as clergy, may want to work with a tax advisor familiar with their situation.


Summary

Tax credits allow you to reduce the taxes you pay based on your Adjusted Gross Income. There are a wide range of tax credits for which you may be eligible. These include credits for spending on children, dependent adults, education, electric vehicles and retirement savings. Please contact the JRB via email or by calling 888-JRB FREE (572-3733) if you have questions about reducing your taxes.

This article is intended for informational purposes only. Please consult a tax professional for specific tax advice.

January 2024