There have been many changes to credits over the last few years; especially Covid related tax credits. Here is what is currently applicable to the 2023 tax year.
Child and Dependent Care Tax Credit – the temporary increase in childcare expenses amount for the credit seen in 2021 have been reversed to 2020 rates. The custodial parent, who is also claiming the dependent, can take a credit of 20% (for Adjusted Gross Income (AGI) over $43,000) of the first $3,000 of eligible childcare expenses paid for one dependent or $6,000 of childcare expenses for 2 or more children.
Child Tax Credit – For years through 2025, the Child Tax Credit is $2,000 per child. The increase for children under 6 and the refundable portion seen in 2021 under the American Rescue Plan, has not been extended. This credit is phased out for incomes exceeding: $400,000 (Married Filing Joint (MFJ) filers) and $200,000 (Married Filing Single (MFS), Single, Head of Household (HOH), or Surviving Spouse filers). The qualifying age for children in 2022 and later is 16 years old or younger.
Education Credits – Credits are available for higher education costs for taxpayers or their dependents by either claiming the American Opportunities Tax Credit or Lifetime Learning Credit. Both credits begin to phase out when AGI’s exceed $80,000 ($160,000 MFJ).
Clean Vehicle Credits (IRC Section 30D and 25E) – cars now need to meet pricing and assembly restrictions – see our recent post about Electric Vehicle Tax Credits for an in-depth look at this new credit. New for 2023, the Previously Owned Clean Vehicle Credit applies to used cars purchased through dealers.
Energy Efficient Home Improvement Credit (IRC Section 25C)– reinstated retroactively to Jan 1, 2022 and through 2032, non-business homeowners can claim a credit for making home improvements such as insulation, or energy efficient windows and doors. For 2023 and beyond, the percentage of the costs was increased from 10% to 30%. Previously the credit was a $500 lifetime cap but has now been replaced with a $1,200 annual limit. There are further annual limitations per property type:
- $600 per a single item of qualified energy property,
- $600 for all exterior windows and skylights,
- $250 for a single exterior door; and $500 max for all exterior doors.
Residential Clean Energy Credit (IRC Section 25D)– A 30% credit has been retroactively reinstated to 1/1/2022 and good through 2034. The credit is taken in the year that work is completed (year placed in service). While a majority of taxpayers claim this credit for Solar Panels, the credit is also for fuel cells, small wind energy, geothermal heat pumps, biomass fuel cells, and qualified battery storage expenditures. Battery storage is increasing in popularity but must be installed in a US personal use property and have a capacity of 3 kilowatt hours or more.
Nanny Tax – 2023 threshold is increased to $2,600; this is the applicable wage threshold for FICA withholdings due on wages paid to household employees. Read to find out if you are considered a household employer.
Unified Exclusion Amount – The 2023 estate exclusion is $12.92 million, slated to revert down to $5M plus inflation in 2026. Now is a great time to discuss estate planning with a licensed professional.
If you have any questions about how these specific tax credits apply to your unique tax situation, please reach out to a member of our team.
Dana R. Borys, an Accountancy Corporation is a boutique tax consulting, compliance, and representation firm working with affluent individuals and start-up/emerging growth companies. Building connections beyond the code.