A refundable tax credit is a type of tax credit that can be claimed by individuals or families who owe little or no income tax. These credits can be used to reduce the amount of taxes owed or, if the credit exceeds the amount of taxes owed, the individual or family may receive a refund for the difference.Here is a list of of four refundable tax credits available to individuals for tax year 2022 & 2023.
Refundable tax credits 1:EITC
Earned Income Tax Credit (EITC) – IRC Section 32 lays down the law for eligibility and claim of the EITC is a credit for low-income working individuals and families. The amount of the credit varies based on income and number of children. Individuals who have earned income from employment or self-employment and have a valid Social Security number can claim maximum EITC as per the limit given below for tax year 2022 & 2023:
|No of Children||Maximum Tax credit |
for Tax year 2022
|Maximum Tax credit |
for Tax year 2023
You can test our Earned Income Tax Credit and read detailed post with EITC Calculator for 2022 & 2023
Refundable tax credits 2:CTC
Child Tax Credit (CTC) – The CTC is a refundable tax credit for each qualifying child under the age of 17. For tax year 2022, the maximum credit is $2,000 per child. The child tax credit is partially refundable year 2022, meaning that families can receive up to $1,500 per child as a refund. To be eligible for the CTC, the child must have a valid Social Security number and be claimed as a dependent on the taxpayer’s return.[Refer IRC Section 24]. You can also test our child tax credit calculator for 2022 with detailed article.
Tax Year 2021– If for any reason you did not file tax return for 2021 and forgot to claim this refundable tax credit , it is suggested you file tax return and claim the refund .The American Rescue Plan (ARP) temporarily expanded by making more age group eligible for the Child Tax Credit (CTC) and increased the partially refundable tax credit from $2,000 per child to as high as fully refundable $3,600 for the 2021 tax year. . But, before you count the tax credit per child, you need to examine if your child is eligible for CTC . Please remember for tax year 2022 , old rules for the child tax credit apply.
Refundable tax credits 3:American Opportunity Tax Credit (AOTC) –
The American Opportunity Tax Credit or AOTC is a partially refundable tax credit for qualified education expenses for students in their first four years of post-secondary education. For tax year 2022, the maximum AOTC credit is $2,500 per student. Up to $1,000 of the credit is refundable. To be eligible for the AOTC, the student must be enrolled at least half-time in a degree or certificate program, and must not have completed the first four years of post-secondary education before the tax year.[Refer IRC Section 25A]
Refundable Tax Credits 4: Premium Tax Credit
IRC Section 36B lays down the basic lay about Premium Tax Credit (PTC) under which a fully refundable tax credit is allowed to help individuals and families afford health insurance purchased through the Health Insurance Marketplace. The amount of the credit is based on income and family size. To be eligible for the PTC, individuals must have an income between 100-400% of the federal poverty level and must not be eligible for other minimum essential coverage such as through an employer or government program.
On August 16, 2022, the Inflation Reduction Act was signed into law by President Biden that enhanced PTC and also has made the healthcare more improving affordable by reducing premium costs of health insurance for consumers. The new law also enhanced the refundable premium tax credit (PTC) for individuals and families who are enrolled in a qualified health plan purchased on the state or federal exchange Marketplace, and who aren’t eligible for other qualifying coverage or affordable employer-sponsored health insurance plans providing minimum value [IRC Sec. 36B(a)].
When you go for tax filing for 2022 or 2023 , check if you are eligible for the aforesaid tax credit and do not forget to claim it.
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