This story is part of Taxes 2023, CNET's coverage of the best tax software, tax tips and everything else you need to file your return and track your refund.
Don't be shocked if you receive a smaller tax refund this year. Tax laws constantly change and this year the IRS reports that the average refund so far is $3,079, which is 11% less than the average of $3,473 at this time last year.
However, there's a silver lining to these tax changes. There are still applicable tax credits you can claim for a bigger tax refund. The child tax credit is the most common credit, but there's a lot of other money to be awarded.
Interested in learning more about using tax credits to score a bigger tax refund? This guide lays out what you need to know. For more tax tips, see all the tax breaks for homeowners and find out the rules for paying taxes on Social Security benefits.
What are tax credits, and how do they work?
Tax credits directly subtract money from the federal income taxes that you owe, meaning each dollar in tax credits you receive is a dollar that you save in taxes. Tax deductions, on the other hand, reduce your amount of taxable income, which lowers your tax bill indirectly.
For example, a single tax filer who earned $80,000 in 2022 with $13,000 in deductions -- or $67,000 taxable income --will pay about $10,000 in federal income taxes. A $1,000 tax credit would reduce their total tax bill to $9,000. A $1,000 tax deduction would lower their taxable income from $67,000 to $66,000 -- at the expected tax rate of 22%, that deduction would result in $220 of tax savings.
Important: You don't need to itemize deductions to claim tax credits.
Tax credits are classified as either nonrefundable, fully refundable or partially refundable.
Nonrefundable tax credits can only be used against taxes that you owe -- once your tax bill hits $0, you don't get the additional money. Fully refundable tax credits are just the opposite -- if your refundable tax credits are more than the income taxes that you owe, you will receive the extra amount back in a tax refund.
Partially refundable credits let you claim a portion of extra money. For example, up to 40% (or $1,000) of the maximum $2,500 for the American Opportunity Tax Credit can be put toward your tax refund if your tax liability hits $0.
Note: The best tax software will determine your eligibility for tax credits using a question-and-answer interview process and automatically add your info to your electronic return, but we've also provided links to IRS forms for each tax credit for those filing on paper or those wishing to learn more. Federal tax credits are recorded on Form 1040 Schedule 3 -- most also require a specific separate form, worksheet or schedule.
Also note that these tax credits listed below are those designed for average American taxpayers. There are additional tax credits for business or rental-property owners that are not covered here.
Tax credits for parents and families in 2023
Some of the biggest benefits in the federal tax code are designed for parents of young kids. All parents who meet income limits receive the child tax credit, while families can also get money back for child care, adult dependents or costs related to adoptions.
Child tax credit: This credit for families with young children provides $2,000 for each dependent child with a Social Security number who was younger than 17 at the end of 2022. The $2,000 per child amount begins to phase out at incomes of $200,000 for single tax filers and $400,000 for married couples filing jointly.
Eric Bronnenkant, head of tax at Betterment, told CNET that the child tax credit is one of the most valuable for taxpayers. He notes that, "the credit is available per qualifying child, so parents of four children could receive $8,000." After several years during the pandemic where the credit was fully refundable, the child tax credit is nonrefundable again, starting this year.
You can claim the child tax credit in 2022 by listing your eligible dependents and their Social Security numbers on your Form 1040 and completing Schedule 8812, "Credits for Qualifying Children and Other Dependents."
Credit for other dependents: If you have children or other dependents who were 17 or older at the end of 2022, you can get a $500 credit for each of them. This information should also be included in Schedule 8812, on lines 6 to 8.
Additional child tax credit: Although the IRS puts this "credit" on a separate page of Form 8812, it works like a partial refund for any child tax credit money that goes beyond your tax burden. If you are eligible 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.
The additional child tax credit can be calculated by completing the worksheet on page 2 of Schedule 8812.
Adoption credit: If you adopted a child or started the adoption process in 2022, you can get up to $14,980 back for eligible expenses, including travel costs and court fees. The credit starts to phase out for taxpayers with modified adjusted gross income (MAGI) of $223,410 and is completely eliminated at $263,410.
The adoption credit is claimed by filing Form 8839, "Qualified Adoption Expenses."
Child and dependent care credit: This tax credit provides money back for expenses related to care for qualifying dependents younger than 13 years old or dependents who are physically or mentally disabled.
Depending on your income, it provides 20 to 35% of your money back on $3,000 in expenses for one qualifying dependent or $6,000 for two or more. Once your adjusted gross income tops $43,000, your credit is limited to 20% of expenses.
The child and dependent care credit was expanded in 2021 to provide up to 50% back on expenses up to $8,000 for one child or $16,000 for multiple children, and it was also fully refundable, but those pandemic-related provisions that expanded the child care credit expired at the end of 2021, and the credit is now nonrefundable.
To claim the child and dependent care credit on your 2022 tax return, you'll add your dependents and their Social Security numbers to your 1040 form and complete IRS Form 2441, "Child and Dependent Care Expenses."
Earned Income Tax Credit: While the EITC isn't limited to families, taxpayers with children reap the biggest rewards. Designed for low- to moderate-income taxpayers, the EITC ranges from $560 to a maximum of $6,935.
For the tax year 2022, here are the tax credits and income limits for the EITC:
Earned Income Tax Credit payouts
|Number of children||EITC amount||Income limit for single, head of household or widowed filers||Income limit for married filing jointly|
Source: Earned Income and Earned Income Tax Credit (EITC) Tables on IRS.gov
Additionally, to claim the EITC, you cannot have more than $10,300 of investment income. Eligible EITC recipients with no children can claim the credit on their 1040 form. Taxpayers with children will need to file Schedule EITC in order to claim their full credit.
The EITC is a refundable tax credit -- meaning you will receive money for it even if you don't owe taxes -- a valuable benefit for people who pay no or little taxes. If you claim the EITC, you'll need to wait a little longer for your tax refund -- by law, the IRS cannot issue refunds with the EITC until mid-February. The agency says to expect tax refunds on returns claiming the EITC by Feb. 28, 2023.
Tax credits for education expenses in 2023
The US tax code currently includes two tax credits for higher-education costs. While the Lifetime Learning Credit and American Opportunity Tax Credit are similar, it's important to know the differences.
The AOTC is more generous than the LLC, but it has a few more restrictions. The LLC has less of a monetary benefit but is more flexible for nontraditional college students, such as those who delayed starting college after high school or those who attend part time.
Lifetime learning credit: Introduced with the Taxpayer Relief Act of 1997, the LLC offers 20% back of the first $10,000 spent on higher education expenses at eligible institutions. The student can either be yourself, your spouse or a qualified dependent, as long as you paid the bills.
The maximum benefit per return is $2,000, regardless of how many students you support. The credit begins to phase out at $80,000 of modified adjusted gross income for single filers ($160,000 for married filing jointly) and is eliminated at $90,000 of MAGI ($180,000 for married filing jointly).
American opportunity tax credit: Designed to replace the Hope Scholarship credit -- which helped pay for the first two years of college -- the AOTC increased both the benefit amount and number of years that families could claim the incentive.
The AOTC provides 100% back on the first $2,000 in higher education expenses for you, your spouse or a qualified dependent, then gives 25% back on the next $2,000 for a total maximum benefit of $2,500. Along with tuition and fees, expenses for books, supplies and equipment are also eligible, but not room and board or transportation.
The AOTC is partially refundable -- you'll get 40% of the money from any extra credit beyond your taxes owed. Bronnenkant told CNET that's "an attractive feature" that gives parents "the choice to not claim the child as a dependent, so that a child with no income can claim the refundable portion."
Both the LLC and AOTC are reported on IRS Form 8863. You are allowed to claim both credits on your tax return, but you can't take both credits for the same student and same year. You also cannot claim either tax credit if you are married filing separately.
Differences between educational expense tax credits
|Rules||Lifetime Learning Credit||American Opportunity Tax Credit|
|Refundable status||Nonrefundable||Partially refundable (40%)|
|Academic progress||No requirements for degrees or credentials||Student must be pursuing degree or credential|
|Maximum benefit||Up to $2,000 per return||Up to $2,500 per student|
|Eligibility requirement||Includes undergraduate, post graduate and continuing studies||Only first 4 years of higher education|
|Limit on years claimed||Unlimited||4 years per eligible student|
|Qualified expenses||Tuition and fees||Tuition, fees and required course materials|
|Excluded behavior||No exclusions||Student cannot have felony drug conviction|
Source: Compare Education Credits on EITC.IRS.Gov
Tax credits for health care in 2023
Premium tax credit: The premium tax credit is related to the Affordable Care Act and designed to help individuals and families pay the costs of health coverage purchased through the public Health Insurance Marketplace.
The premium tax credit is usually restricted to taxpayers who earn between 100% and 400% of the federal poverty guidelines, but for 2021 and 2022 the upper limit restriction has been eliminated. Those earning four or more times the poverty threshold will receive a premium tax credit equal to the cost of health premiums minus 8.5% of their household income.
When you buy insurance through the public marketplace, you'll need to provide your income information, which will then be used to estimate your premium tax credit. If you like, you can receive advance payments of the premium tax credit during the year in order to pay your premiums.
If you received advance premium tax credit payments in 2022 or if you want to claim the full credit on your 2022 tax return, you'll need to complete Form 8962, "Premium Tax Credit." If the advance payments you received are greater than your eligible amount, you'll need to repay the difference.
A question-and-answer app on the IRS website can help you determine whether you qualify for the premium tax credit. The premium tax credit is fully refundable.
Tax credits for investing and saving in 2023
If you invested money abroad or contributed to retirement accounts in 2022, you'll want to look at the saver's credit and the foreign tax credit.
Saver's tax credit: Officially named the retirement savings contributions credit, the saver's credit gives you money back on qualifying contributions to retirement accounts. Depending on your adjusted gross income (AGI), you can get 10%, 20% or 50% of your money back on:
- Contributions to traditional or Roth IRAs
- Salary deferrals for 401(k), 403(b), 457(b), SARSEP or SIMPLE plans
- After-tax employee contributions to qualified retirement plans
- Contributions to ABLE accounts for disabled people
- Contributions to a 501(c)(18)(D) plan (an old, member-funded pension trust)
Here are the income restrictions and saver's tax credit percentage amounts for 2022:
How much you can claim for the saver's credit
|Saver's credit rate||Married filing jointly AGI limit||Head of household AGI limit||AGI 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 $73,000||More than $54,750||More than $36,500|
Source: Retirement Savings Contributions Credit (Saver's Credit) on IRS.gov
To claim the saver's credit, you'll need to file Form 8880, "Credit for Qualified Retirement Savings Contributions."
Foreign tax credit: If you were taxed on your income by a foreign country in 2022 and that income is also taxable by the US, you could be eligible for a credit to reduce your tax bill. The foreign tax credit can apply to wages but also to stocks, bonds or mutual funds bought in foreign countries.
What's interesting about foreign taxes on income is that they can be claimed as either a tax credit or a tax deduction, though the IRS advises most taxpayers will benefit more from taking the credit. The foreign tax credit is calculated as a fraction of your total US tax liability, depending on 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 home and car owners in 2023
Our final group of tax credits includes money back on your taxes for making energy efficient improvements to your home, first-time homebuyer credits and incentives for purchasing electric cars.
To make things extra complicated, the two home improvement credits have new names and rules due to the Inflation Reduction Act, but we'll break them down for you.
Residential clean energy credit: This home tax credit is the big one -- it provides 30% back on costs related to "solar electricity, solar water heating, wind energy, geothermal heat pumps, biomass fuel systems or fuel cell property." Fuel cell property is capped at $500 per half a kilowatt of capacity, but there are no other restrictions.
Energy efficient home improvement credit: Formerly called the nonbusiness energy property credit, this smaller home tax credit gives you money for the installation of Energy Star-certified products and qualified improvements like new windows or insulation.
You'll get a flat tax credit from $50 to $300 for installing eligible appliances like water heaters and furnaces, and 10% back for other energy efficiency improvements.
Unfortunately, this credit currently tops out at $500 lifetime for improvements made after 2005. Next year, the IRA changes the limit to $1,200 annually, but that rule doesn't apply to this year's taxes.
You can claim both of the home energy credits on Form 5695, "Residential Energy Credits."
Mortgage interest credit: This credit for first-time homebuyers should be considered when you are purchasing a home, because you'll need to get a mortgage credit certificate (MCC) from your lender in order to qualify.
If your income qualifies you for an MCC, you can get a credit for a percentage of your mortgage interest up to $2,000. The percentage of interest that you can claim varies from state to state, ranging from 10 to 50 percent.
After claiming that set percentage of your mortgage interest as a credit, you'll then be able to take the remaining mortgage interest as a tax deduction, if you itemize.
The mortgage interest credit is nonrefundable, but, if your credits outweigh your taxes owed, you can "carry forward" extra credit money for up to three years.
Electric vehicle credits: There are two electric vehicle credits: One for installing a charging station on your personal property and another for purchasing an electric vehicle.
If you installed any sort of charging station that uses alternative energy at your home in 2022, you can claim a tax credit worth 30% of the installation cost or $1,000, whichever is smaller. You'll need to file Form 8911, "Alternative Fuel Vehicle Refueling Property Credit."
Clean vehicle tax credit: If you purchased a new electric car or light truck in 2022 you might be eligible for up to $7,500, but there are several restrictions.
To qualify, vehicles must have four wheels, weigh less than 14,000 pounds and run on an electric motor with a battery that lasts at least 4 kilowatt hours and can be charged externally.
The vehicle also must be from a manufacturer that has sold fewer than 200,000 electric vehicles in the US. And if you bought the vehicle after August 16, 2022, the final assembly of the car or truck must have taken place in the US.
The tax credit for two-wheeled electric vehicles expired at the end of 2021, but if you purchased such a vehicle in 2021 and didn't start using it until 2022, you might be eligible for the credit this year.
To claim the electric vehicle tax credit, file Form 8936, "Qualified Plug-In Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles)."
Remember that you don't need to itemize deductions in order to claim tax credits, and that the best tax software will make it easy for you to identify all the credits that you can claim. Forget the forms, file electronically and use direct deposit to get the biggest refund possible in the quickest time.