File Savvy, Not Fast: Review Tax Credits for a Bigger Refund in 2024

Tax credits for 2024

There are just two weeks left to file your 2023 tax return. The deadline is April 15th for most taxpayers in the United States. While you might be rushing to finish your return, it’s important to take your time. Reviewing tax credits can help you get a bigger refund. Also, these credits are available for different groups of people, such as families with children, students paying for education, and people with medical bills. Investors who put money into special accounts may also qualify for tax credits.

So, Let’s explore some of these credits and see how they can benefit you.

What are Tax Credits and How do they work?

Tax credits are like cash back on your taxes. They directly reduce the amount of money you owe the government. This means every dollar you get in tax credits saves you a dollar on your tax bill.

Here’s how it works differently from deductions: Let’s say you earned $80,000 in 2023 and have $13,000 in deductions. This brings your taxable income down to $67,000. With a 22% tax rate, you’d owe roughly $10,000 in federal income taxes.

  • A $1,000 tax credit would simply take $1,000 off your tax bill, bringing it down to $9,000.
  • On the other hand, a $1,000 deduction would only reduce your taxable income to $66,000. At a 22% tax rate, that translates to just $220 saved on your taxes, leaving you with a $9,780 bill.

There are three types of tax credits:

  • Nonrefundable credits: These can only reduce your tax bill to zero. Any leftover credit cannot be refunded.
  • Refundable credits: If these credits are greater than your tax bill, you’ll get the difference back as a tax refund.
  • Partially refundable credits:  These credits can be partly used to offset your tax bill and partly refunded if there’s leftover credit.

Tax credits are a more powerful way to save money on your taxes because they directly affect the amount you owe, unlike deductions which only reduce your taxable income by a certain percentage.

Tax Credits Available for Parents and Families in 2024

The U.S. tax code offers several tax credits that can benefit parents and families. Let’s explore some of the most common ones:

a. Child Tax Credit

Families with young children can benefit from this tax credit, receiving $2,000 for each child under 17 years old with a Social Security number by the end of 2023. This amount starts to decrease for single filers earning over $200,000 and married couples filing jointly earning over $400,000. This credit is highly valuable for taxpayers. For instance, parents with four children could receive up to $8,000. While the child tax credit is no longer fully refundable, you can still get up to $1,500 back for each child if your credits exceed your tax liability.

Potential Changes: Congress is discussing potential changes to the child tax credit, including increasing the amount available in the additional child tax credit and tying the overall credit to the cost of living. This would mean the credit amount would increase annually based on inflation rates. However, these changes are currently pending in the US Senate.

Claiming the Credit: To claim the child tax credit, list your eligible dependents and their Social Security numbers on your Form 1040 and complete Schedule 8812, “Credits for Qualifying Children and Other Dependents.

b. Credit for Dependents
If you have children or other dependents aged 17 or older at the end of 2023, you can claim a $500 credit for each of them. Remember to include this information on lines 6 to 8 of Schedule 8812. The credit starts to decrease if your income exceeds $200,000 for single filers or $400,000 for those filing jointly.

Additional Child Tax Credit: This works like a refund for any child tax credit money exceeding your tax burden. For instance, if you qualify for the $2,000-per-child tax credit but your tax liability is already $0, you can receive up to $1,500 for each eligible child as part of a tax refund. To calculate this, you can fill out the worksheet on page 2 of Schedule 8812.

c. Adoption Credit

If you adopted a child or started the adoption process last year, you could get back up to $15,950 for eligible expenses, such as travel costs and court fees. This credit starts to decrease if your income is $239,230 or more and disappears if it reaches $279,230. To claim the adoption credit, file Form 8839, “Qualified Adoption Expenses.”

d. Child and Dependent Care Credit

This tax credit gives money back for taking care of kids under 13 or dependents with disabilities. Depending on your income, you can get back 20% to 35% of your expenses, up to $3,000 for one kid or $6,000 for two or more. But if your income is over $43,000, you can only get 20% back.

Child Tax Credit: Although smaller than last year, the child tax credit is still $2,000 per child. It provides a refund on a portion of expenses for each qualifying dependent, up to $3,000 for one child or $6,000 for two or more children, depending on your income.

Changes in 2021: In 2021, the child and dependent care credit was expanded. It provided up to 50% back on expenses, up to $8,000 for one child or $16,000 for multiple children. Also, it was fully refundable. However, these provisions ended in 2021, and the credit is now nonrefundable.

How to Claim: To claim the child and dependent care credit on your 2023 tax return, you’ll need to include your dependents and their Social Security numbers on your 1040 form. Additionally, you’ll have to fill out IRS Form 2441, titled “Child and Dependent Care Expenses.”

e. Earned Income Tax Credit (EITC) payouts

The Earned Income Tax Credit (EITC) is a tax credit for low- and moderate-income workers. The amount of the credit you can receive depends on your filing status, how many children you have, and your earned income. Here’s a breakdown of the EITC for tax year 2023:

  • Number of children and EITC amount:
    • No children: $600
    • 1 child: $3,995
    • 2 children: $6,604
    • 3 or more children: $7,430
  • Income limits:
    • Single, Head of Household, or Widowed filers:
      • No children: Up to $17,640
      • 1 child: Up to $46,560
      • 2 children: Up to $52,918
      • 3 or more children: Up to $56,838
  • Married Filing Jointly:
    • No children: Up to $24,210
    • 1 child: Up to $53,120
    • 2 children: Up to $59,478
    • 3 or more children: Up to $63,398

Additional requirements:

  • To claim the EITC, you cannot have more than $11,000 of investment income.
  • You will need to file either a 1040 form (with no children) or Schedule EITC (with children) to claim the credit.

Refund timing:

  • The EITC is a refundable tax credit, meaning you can get money even if you don’t owe taxes.
  • However, tax refunds with the EITC are typically delayed by law until mid-February.
  • For tax year 2023, the IRS expects to start issuing EITC refunds by February 27, 2024.

Tax Credits for College in 2024

There are two main tax credits available in the US to help you save money on college expenses: the Lifetime Learning Credit (LLC) and the American Opportunity Tax Credit (AOTC). Let’s break down the key details of each option.

a. Lifetime Learning Credit (LLC): 

This credit, introduced in 1997, gives you back 20% of the first $10,000 you pay in qualified education expenses. This can be for you, your spouse, or your dependents. The maximum credit amount is $2,000 per tax return, no matter how many students you’re supporting.

To qualify for the full credit, your Modified Adjusted Gross Income (MAGI) needs to be below $80,000 for single filers or $160,000 for married couples filing jointly. The credit starts to decrease once your MAGI goes above these limits and disappears completely at $90,000 for singles or $180,000 for married couples filing jointly.

b. American Opportunity Tax Credit (AOTC):

The American Opportunity Tax Credit, also known as the AOTC, is a tax credit designed to help you pay for college expenses. It’s a more generous version of an older credit called the Hope Scholarship credit.

Here’s how the AOTC works:

  • You can get back 100% of the first $2,000 you spend on qualified education expenses. This could include tuition, fees, books, supplies, and equipment.
  • You can also get back 25% of the next $2,000 you spend on qualified expenses.
  • The maximum credit you can receive is $2,500 per year.

There are a few things to keep in mind:

  • The AOTC is partially refundable. This means that even if you don’t owe any taxes, you can still get back up to 40% of the credit amount.
  • You can claim the AOTC for yourself, your spouse, or a qualified dependent.
  • You can’t claim both the AOTC and the Lifetime Learning Credit for the same student in the same year.
  • You can’t claim the AOTC if you are married and filing your taxes separately.

If you’re paying for college expenses, the AOTC could be a great way to save money on your taxes. Be sure to talk to your tax advisor to see if you qualify.

Differences between educational expense tax credits

RulesLifetime Learning CreditAmerican Opportunity Tax Credit
Refundable statusNonrefundablePartially refundable (40%)
Academic progressNo requirements for degrees or credentialsStudents must be pursuing a degree or credential
Maximum benefitUp to $2,000 per returnUp to $2,500 per student
Eligibility requirementIncludes undergraduate, postgraduate and continuing studiesOnly the first 4 years of higher education
Limit on years claimedUnlimited4 years per eligible student
Qualified expensesTuition and feesTuition, fees and required course materials
Excluded behaviorNo exclusionsStudents cannot have felony drug conviction

Source: Compare Education Credits on EITC.IRS.Gov

Tax credits for Health Care in 2024

This credit is specifically designed to make health coverage through the public Health Insurance Marketplace more accessible for people with lower and moderate incomes.

Here’s how it works: If your household income falls between 100% and 400% of the federal poverty level (which is a measure of income used by the government), you may be eligible for the Premium Tax Credit.  In simpler terms, this means the credit is available to people who make a certain amount of money each year. The exact income range depends on the number of people in your household.

When you shop for health insurance through the Marketplace, you’ll provide information about your income. This information is used to estimate how much of a tax credit you might qualify for. You then have two options: you can receive the credit in advance payments throughout the year to help you pay your monthly health insurance premiums, or you can claim the full amount of the credit when you file your taxes.

There’s a handy tool on the IRS website that can help you determine if you qualify for the Premium Tax Credit. It’s a question-and-answer app, so you can easily find out if this program is right for you.

Finally, it’s important to note that the Premium Tax Credit is fully refundable. This means that even if you don’t owe any taxes, you can still get the full value of the credit back when you file your tax return.

Tax credits for investing and saving in 2024

This credit called the Saver’s Credit (officially named the retirement savings contributions credit), rewards you for saving for your future.

Here’s how it works: The Saver’s Credit gives you a percentage of your contributions back, depending on your income. The more you earn, the smaller the percentage. You can get back 10%, 20%, or even 50% of your contributions to a variety of retirement plans.

Here are the types of contributions that qualify for the Saver’s Credit:

  • The money you put into a traditional or Roth IRA
  • Salary deferrals you make to your employer-sponsored retirement plan, like a 401(k), 403(b), or 457(b)
  • Voluntary after-tax contributions you make to your retirement plan on top of your regular contributions
  • Money you contribute to an ABLE account if you are the designated beneficiary of someone with a disability
  • Contributions you make to a specific type of pension plan (called a 501(c)(18)(D) plan)

Remember, there are income limits to qualify for the Saver’s Credit. Here’s a breakdown

Saver’s credit rateMarried filing jointly AGI limitHead of household AGI limitAGI limit for all other filing statuses
50%$43,500 or less$32,625 or less$21,750 or less
20%$43,501 to $47,500$32,626 to $35,625$21,751 to $23,750
10%$47,501 to $73,000$35,626 to $54,750$23,751 to $36,500
0%More than $73,000More than $54,750More than $36,500

Foreign Tax Credit

If you paid taxes on 2023 income to a foreign country, you may be eligible to reduce your U.S. tax bill with the foreign tax credit. This applies not just to wages, but also to income you receive from investments like stocks, bonds, or mutual funds held in foreign countries.

The IRS offers you a choice: claim those foreign taxes you paid as either a credit or a deduction on your U.S. tax return. However, in most cases, the IRS recommends that you take advantage of the foreign tax credit. This credit reduces your U.S. tax liability dollar-for-dollar, up to a certain limit based on your total foreign and domestic income.

To claim the foreign tax credit, you’ll need to file Form 1116, “Foreign Tax Credit (Individual, Estate, or Trust).”

Tax Credits for Homeowners in 2024

Thinking about making energy-efficient improvements to your home? You might be eligible for a tax credit to help offset the costs!  The Inflation Reduction Act (IRA) of 2022 introduced new rules for these credits in 2023, but don’t worry, they’re still available in 2024.

Solar Energy Power Credit

If you’re considering installing solar panels, there’s a great incentive. The residential clean energy credit provides a 30% tax credit on the cost of installing solar panels, solar water heating systems, wind energy systems, geothermal heat pumps, biomass fuel systems, or even fuel cell property. There’s a cap of $500 per half-kilowatt of capacity for fuel cell property, but otherwise, there are no limitations on the credit amount.

This credit is a fantastic way to save money on renewable energy installations for your home, and the good news is, the 30% credit rate is locked in until the end of 2032. After that, it will gradually decrease to 26% in 2033 and 22% in 2034 before expiring altogether in 2035.

Energy Efficient Home Improvement Credit

The Energy Efficient Home Improvement Credit, formerly known as the nonbusiness energy property credit, has been significantly improved for tax years 2023 and beyond.

Previously, the credit offered a limited amount of money for specific energy-efficient upgrades, with a lifetime maximum of $500. However, thanks to the Inflation Reduction Act (IRA) of 2022, things have changed for the better.

Here’s a breakdown of the new and improved credit:

  • Increased Credit Amount: You can now claim up to $3,200 annually for qualified energy-efficient improvements made to your primary residence (the home you live in most of the year).
  • Credit Percentage: Instead of flat fees for specific improvements, you’ll now receive 30% back on the total cost of qualified energy expenses.
  • Annual Limits: The $3,200 annual credit is divided into two categories:
    • A $1,200 limit for qualified improvements like new windows, doors (with a maximum of $250 per door and $500 total), and home energy audits (up to $150).
    • A separate $2,000 limit for qualified heat pumps, biomass stoves, or biomass boilers.
  • No Lifetime Limit: Unlike the previous credit, there’s no longer a lifetime maximum on the amount you can claim.
  • Nonrefundable Credit: It’s important to note that the credit is nonrefundable. This means it can only reduce your tax bill to zero, and any unused credit cannot be carried forward to future tax years.

For more details on the specific qualified expenses you can claim under the Energy Efficient Home Improvement Credit, visit the IRS website.  You can claim both the new and improved home energy credits on Form 5695, “Residential Energy Credits.”

Mortgage Interest Credit 

Buying a home can be exciting, but it can also be expensive.  There are financial programs available to help first-time homebuyers make owning a home more affordable, and the Mortgage Interest Credit (MIC) is one of them.

Here’s how the MIC can benefit you:

  • Tax Credit for a Portion of Your Mortgage Interest:  If your income meets the requirements, you can qualify for a credit that reduces your taxes owed. This credit applies to a percentage of the interest you pay on your mortgage, up to a maximum of $2,000 each year.
  • Percentage of Interest Credited Varies by Location: The exact percentage of your mortgage interest that qualifies for the credit depends on the state you live in.  Nationally, this percentage can range from 10% to 50%.
  • Combine Credit with Traditional Tax Deduction: After claiming the MIC credit, you can still deduct the remaining portion of your mortgage interest on your taxes,  but only if you itemize deductions on your tax return.
  • Non-Refundable Credit with Carryover Option: The MIC is not a refundable tax credit, meaning it won’t give you a tax refund if it reduces your tax bill to zero. However, if the amount of credit you qualify for is greater than the amount of taxes you owe, you can carry forward the unused portion of the credit and apply it to your tax return for up to three years.

New Clean Vehicle Credit

If you purchased a new electric car or light truck in 2023, you may be eligible for a federal tax credit of up to $7,500. However, there are a few restrictions to keep in mind.

  • The vehicle must have four wheels and weigh less than 14,000 pounds.
  • It must be powered by an electric motor with a battery that can store at least 7 kilowatt-hours of energy and can be charged by plugging it in.
  • The vehicle must be finally assembled in the United States.
  • The manufacturer’s suggested retail price (MSRP) of the vehicle cannot exceed $55,000.
  • There are also income limitations for this credit, depending on your tax filing status.

Income Limits for EV Tax Credit: 

Filing StatusIncome
Head of Household$225,000
Married, filing jointly$300,000
Married, filing separately$150,000

Good News for Used Electric Vehicle Buyers in 2023!

There’s a new tax credit available for people who purchased a qualifying used electric vehicle (EV) in 2023. This credit, called the Previously Owned Clean Vehicle Credit, can give you back up to 30% of the purchase price of your EV, with a maximum of $4,000.

Here’s a quick breakdown of the eligibility requirements:

  • The used EV must have a price tag of $25,000 or less (including dealer fees).
  • The model year of the EV must be at least two years older than the year you bought it. For example, if you bought an EV in 2023, it must be a 2021 model year or earlier.
  • This credit can only be claimed once for a specific vehicle.

To claim this credit, you’ll need to file Form 8936 with your tax return. The good news is that claiming a tax credit doesn’t require you to itemize your deductions. Additionally, using tax filing software can help ensure you claim all the credits you’re eligible for.

For a faster and easier refund process, consider filing electronically and using direct deposit.