Taxpayers take advantage of tax credits and deductions when filing their tax returns each year. Deductions may decrease the amount of income being taxed. Credits may lower the taxpayer’s tax liability dollar for dollar. Some credits are nonrefundable and can only decrease the tax liability to $0. Other credits are fully or partially refundable, meaning refunds are possible to the extent the credit exceeds the tax liability.
This article discusses five of the most common tax credits for individual taxpayers. Please note that further analysis is required to determine a taxpayer’s eligibility to claim each of these credits. Reach out to a Forvis Mazars professional or use the Contact Us form below to learn more.
Earned Income Tax Credit
The earned income tax credit (EITC) is a fully refundable credit for taxpayers who worked during the tax year and is available to lower-income families and individuals who have a valid Social Security number and are U.S. citizens or resident aliens. The credit amount may change depending on the number of children or dependents claimed by the taxpayer, the taxpayer’s income, and filing status. The table below summarizes the maximum adjusted gross income (AGI) for 2022 to potentially qualify a household for the credit, depending on filing status. The last line in the table provides the maximum credit amount, depending on the number of qualifying children. For more information, visit the IRS website.
| Tax Year 2022 | Zero Qualifying Children | 1 Qualifying Child | 2 Qualifying Children | 3 Qualifying Children |
|---|---|---|---|---|
| Maximum AGI* Married Filing Jointly | $22,610 | $49,622 | $55,529 | $59,187 |
| Maximum AGI* All Other Filing Statuses** | $16,480 | $43,492 | $49,399 | $53,057 |
| Maximum Credit Amounts | $560 | $3,733 | $6,164 | $6,935 |
*Adjusted gross income (AGI). Taxpayers must have earned income that does not include any foreign-earned income and their investment income cannot exceed $10,000.
**Taxpayers who file Married Filing Separately must meet the eligibility requirements.
Child Tax Credit
The Child Tax Credit (CTC) provides a tax benefit to families based on the number of qualifying dependent children who have a Social Security number. In 2021, the American Rescue Plan Act made significant changes to this tax credit. However, absent legislative changes, the child tax credit reverts to $2,000 per child in 2022 (the refundable portion of the credit is up to $1,500). To claim the CTC on your 2022 tax return, your modified adjusted gross income (MAGI) must be below $200,000 for single filers and $400,000 for married taxpayers filing a joint tax return. If your MAGI is above these thresholds, your credit amount would be reduced by $50 for every $1,000.
Child and Dependent Care Tax Credit
The Child and Dependent Care Tax Credit helps taxpayers pay for the care of their children and other qualifying dependents while they are working or seeking work. Unlike in 2021, for 2022, this credit is nonrefundable. For 2022, taxpayers may claim the credit on up to $3,000 of qualifying expenses (one qualifying individual) or $6,000 (two or more qualifying individuals). The maximum credit depends on your AGI: The full credit amount, equal to 35% of employment-related expenses, is allowed only for households making less than $15,000 in 2022. For income over $15,000, the credit is reduced based on income levels so that once your income equals $43,000, the credit amount lowers to 20% of eligible expenses. In addition, since there is no AGI limit on who can claim the credit, even high-income taxpayers can claim it. For more information, visit the IRS website.
Education Tax Credits
Two education tax credits available in 2022 are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Both credits help students who have incurred qualified education expenses. Eligible students may include the taxpayer, the taxpayer’s spouse, or a dependent. These credits are mutually exclusive and cannot be claimed simultaneously by a student in a given tax year.
AOTC
The AOTC is a partially refundable credit. The maximum credit allowed per student is $2,500 and up to $1,000 of that amount can be refunded if you do not owe any tax. The credit can only be claimed for the first four years of an eligible student’s higher education. Other requirements apply to be considered eligible for the AOTC. Qualified expenses for this credit include tuition, required enrollment fees, and course materials needed for the course of study. For 2022, the AOTC is phased out for those with MAGI over $80,000 for single filers and $160,000 for married taxpayers filing a joint tax return. Note, if a taxpayer has a MAGI of $90,000 or more ($180,000 for joint filers), they cannot claim this credit.
LLC
The LLC is not a refundable credit. The maximum credit allowed per return is $2,000 (or 20% of qualified tuition and fees up to $10,000). There is no limit on the number of years you can claim the credit. The LLC can be claimed for students enrolled in undergraduate, graduate, and professional degree programs. Qualified expenses for this credit include tuition and required enrollment fees. The LLC phases out for those with MAGI over $80,000 for single filers and $160,000 for taxpayers filing joint returns. Note, if a taxpayer has a MAGI of $90,000 or more ($180,000 for joint filers), they cannot claim this credit.
For a list of other tax incentives available to individuals, including tax credits for electric vehicles, homeowners, and healthcare expenses, and deductions related to work, education, and investments, visit the IRS website.
IRS Interactive Tax Assistance
The IRS offers the Interactive Tax Assistance (ITA) tools below to help you determine if you qualify for any of the above credits. You will not be asked to provide information such as Social Security numbers, names, bank account information, or addresses during the process.
Forvis Mazars prepares thousands of tax returns for individuals annually. Our team takes a forward-looking approach to develop advantageous tax strategies to help you plan for the future. Whether you’re interested in learning more about the top five tax credits available to individuals, or you need assistance developing your tax strategy, our advisors aim to provide you with an Unmatched Client Experience™.