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Tax Credits in 2024: What Can I Claim?
Tax Credits in 2024: What Can I Claim?
Tax credits are like little money-saving hacks the government offers for things like going to school, making your home energy-efficient or even buying an electric car. They directly cut down how much you owe in taxes, making them a valuable tax break.
Knowing how to claim these credits can make a big difference in your wallet this year. We’ll take you through the child tax credit for 2023, the federal solar credit, the electric vehicle tax credit and whether the ERC tax credit is still valid for 2024.
Table of contents
What is a tax credit?...Read more
What is the Earned Income Tax Credit?...Read more
American Opportunity Tax Credit...Read more
Child Tax Credit...Read more
Investment tax credits...Read more
Federal solar tax credit...Read more
Electric vehicle tax credit...Read more
Employee Retention Credit (ERC)...Read more
What is a tax credit?
Tax credits are usually created to encourage or reward behaviors that are good for the economy, the environment or other important goals set by the government. Sometimes, tax credits can help cover certain expenses you have during the year, but there are usually specific requirements you need to meet to claim them.
For example, there are credits for things like using renewable energy, paying for higher education or making your home more energy-efficient. There are also tax credits for lower income families with children. To get these credits, you'll need to fill out certain forms, prove your eligibility and keep records of your expenses.
Tax credits are different to tax deductions, as they directly affect your tax liability. Deductions can lower your taxable income, credits can lower your tax bill. So, it makes sense to use both when you can.
Sometimes, you might qualify for refundable tax credits. These can increase your refund if they are more than what you owe in taxes. This is different from getting a tax refund from the government, which you’ll only receive if you overpaid your taxes.
What is the Earned Income Tax Credit?
The Earned Income Tax Credit (EITC) is a tax break for eligible low and middle-income taxpayers. The amount you get depends on your income and how many qualifying children you have, though you can qualify even if you don’t have any children.
For the 2023 tax year, the EITC amounts are $600 if you have no children, $3,995 for one child, $6,604 for two children and $7,430 for three or more children. However, you can't claim the EITC if your investment income exceeds $11,000.
To qualify in 2023, single filers can earn up to $56,838, and joint filers can earn up to $63,398 with three or more dependent children.
For the 2024 tax year, the EITC amounts increase to $632 for no children, $4,213 for one child, $6,960 for two children and $7,830 for three or more children. Additionally, your investment income must be $11,600 or less to qualify.
For the 2024 tax year, if you're single, you can earn up to $59,899 to qualify, and if you're married and filing jointly, you can earn up to $66,819 with three or more dependent children.
American Opportunity Tax Credit
The American Opportunity Tax Credit is available to individuals during the first four years of their higher education. To qualify, students must be working towards a degree, enrolled at least half-time for at least one semester, not have received the credit for more than four years and not have a felony drug conviction by the end of the tax year.
For the 2024 tax year, students can receive up to $2,500 through the American Opportunity Tax Credit. Up to 40% of this credit is refundable, so if you qualify for the full $2,500, you can get up to $1,000 back even if you owe no taxes.
The credit covers 100% of the first $2,000 in qualified education expenses and 25% of the next $2,000. So, if you pay at least $4,000 in education expenses, you’ll get the full $2,500 credit.
To be eligible, you need a 1098-T form from your institution. Your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married couples filing jointly) to get the full credit.
If you're claiming the credit for your dependent, you can claim the credit on your return. Taxpayers can also claim a reduced credit if their MAGI is $90,000 or less (or $180,000 or less for joint filers).
Child Tax Credit
The Child Tax Credit is for people with dependent children under 17. It can reduce your tax bill dollar for dollar, and sometimes you can get a partial refund if your credit is more than your tax bill.
To qualify, your child must be under 17 and meet certain criteria, like being related to you. Your income also matters. If you make too much money, you might get a smaller credit or none at all because the credit phases out for higher earners.
So how much is the Child Tax Credit in 2024? For taxes filed in 2024, the child tax credit was $2,000 per qualifying child if your modified adjusted gross income (MAGI) was $400,000 or less for married couples filing jointly, or $200,000 or less for other filers.
If your MAGI was above these limits, the credit was reduced by $50 for every $1,000 over the threshold. The refundable part, called the additional child tax credit, could be up to $1,600.
For the 2024 tax year (filed in 2025), the child tax credit will still be $2,000 per qualifying child, with up to $1,900 potentially refundable through the additional child tax credit.
If you’re wondering when the Child Tax Credit payments start in 2024, the first payment is expected to be deposited on July 15, 2024 and then on the 15th of every month.
Investment tax credits
Investment tax credits (ITCs) are special incentives from the government to encourage people and businesses to invest in things that are good for the economy or environment. These credits directly reduce the amount of tax you owe, making them a great way to save money.
For example, if you install solar panels on the roof of your business, you might get a tax credit that covers part of the installation cost. This can lower your tax bill significantly while also helping the environment.
ITCs are helpful because they make big investments more affordable. They also boost economic growth by encouraging spending on new technologies and projects. This type of credit applies to solar, energy and coal projects, among others.
Federal solar tax credit
The federal solar tax credit, also known as the residential clean energy credit is offered to homeowners looking to make their homes more environmentally friendly. This isn’t a business tax credit, unlike the investment credits we mentioned earlier.
A federal solar tax credit can offset up to 30% of eligible expenses. This amount will remain unchanged until 2032. You can use this credit to cover the solar panel purchase and installation expenses but any extra structures built to support the panels will be on your dime.
Electric vehicle tax credit
Another clean energy credit is the EV tax credit. The IRS has specific rules that determine your tax credit amount when you purchase a new electric vehicle (EV). These credits apply to EVs bought after 2010, weigh up to 14,000 pounds, have a battery pack larger than 5 kWh and can be charged using an external source like a charging station. Depending on the battery capacity of the EV, the tax credit ranges from $2,500 to $7,500.
If you want to claim the EV Tax credit for 2023, your vehicle needs to be put into service in the same year. You can check the IRS website to see the list of eligible vehicles.
Employee Retention Credit (ERC)
The ERC was offered to help struggling employers during the COVID-19 pandemic. If businesses were forced to partially close their operations or experienced a decline in gross receipts, they could apply for this credit.
This credit was originally halted at the end of 2021, but employers still could file amended returns to claim it. Unfortunately, the IRS had to suspend the credit in 2023 due to an increase in false claims.
Keeping track of all these credits can get overwhelming, especially since the limits and eligibility rules can change every year. FlyFin’s expert CPAs can do all the work for you, including helping you navigate the EV tax credit, checking if you qualify for the Child Tax Credit in 2024 and handling the entire tax filing process. If you’re self-employed, AI also finds all your deductions, helping you keep the tax season stress at bay.
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