Taxes 2023: Which Credits and Deductions Apply to You?

A close up of Schedule A for itemizing deductions for United States income tax.
emmgunn / Getty Images

Tax credits and deductions were already confusing many of us before all of this year’s substantial changes. 

In a recent GOBankingRates survey, 67% of respondents listed one or the other as what they understand least about their taxes. Only 10% of those surveyed knew this year’s standard deduction ($12,950 for single filers, $25,900 if you’re married and filing jointly), and most were way off.

Figuring it all out remains daunting for a lot people. In the same survey, nearly 9% of respondents said they would rather be spending the night in jail than doing their taxes. More than 11% said they would rather be getting a root canal. And nearly one-third said they weren’t planning to file until the week of Tax Day (April 18) — or later. 

There are also changes to be aware of this tax season, with many filers receiving smaller refunds or owing more than they were expecting. Most involve the 2021 American Rescue Plan Act, which provided only short-term relief. 

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“Almost all of the pandemic relief programs for families with children, childless workers and small business owners have expired,” said Andy Phillips, director of H&R Block’s Tax Institute. 

“There are changes related to some of the big credits under the American Rescue Plan,” explained Lisa Greene-Lewis, a San Diego-based CPA and tax expert with TurboTax. “A lot of them are still in place, but the credits are going down.”

To help you through, here are some basics on deductions and tax credits, plus some highlights of what’s different this tax year.

How Do Deductions and Tax Credits Work?

Deductions can indirectly reduce your tax bill by lowering the income figure you’re taxed on. 

For example, some teachers qualify to deduct $250 for unreimbursed classroom expenses. That lowers the taxable income figure by $250. The actual reductions to that teacher’s tax bill would depend on the teacher’s marginal tax rate, or tax bracket.

That said, most people take the aforementioned standard deduction, rather than itemizing deductions.

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A tax credit directly cuts the amount of taxes you owe — and may increase your refund.

For example, if you purchased a new electric vehicle after Aug. 16, 2022, and it underwent final assembly in North America, you may qualify for a $7,500 tax credit. That could save you up to $7,500 on your tax bill, if you owe that much. Other tax credits are “refundable,” which means if the credit is higher than the amount you owe, the government will pay you the difference.

The “final assembly in North America” part of the electric vehicle credit is new this tax year, one of many notable changes.

What Has Changed in Tax Credits and Deductions?

Some of the benefits many of us enjoyed during the last tax year have changed or aren’t there anymore, which means smaller refunds for many. Here’s a rundown of some of the biggest changes:

Earned Income Tax Credit

  • Age requirements for this refundable tax credit — designed to help low- to moderate-income Americans — are back to where they were before the American Rescue Plan Act. If you don’t have kids, you or a qualifying spouse need to be 25-64 to claim this one. Last year, it was expanded to cover ages 19-24 and 65+.
  • In addition, last tax year’s increase of the maximum benefit for those not claiming a child to $1,502 will be decreased to $560.
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Child Tax Credit

  • This credit is back down to $2,000 for each dependent child, and you can no longer claim it for 17-year-olds. Last year, it ranged from $3,000 (children 6-17) to $3,600 (for children under 6).
  • In addition, this credit is refundable only up to $1,400. Last year, it was fully refundable.
  • Unlike tax year 2021, no advance payments have been issued this time around.

Child and Dependent Care Credit

  • This credit is also back down to pre-American Rescue Plan Act levels. This tax year, you can claim up to 35% of $3,000 ($1,050) of care expenses for a dependent child under 13, an incapacitated spouse or parent, or another dependent as needed to allow you to work or search for a job. For two dependents, it’s 35% of $6,000 ($2,100). That’s down from last year’s numbers — up to 50% of $8,000 ($4,000), and up to 50% of $8,000 for two or more dependents.

Self-Employed Sick Leave and Family Leave Credit

  • Expired. Eligible small-business owners and the self-employed had enjoyed an extension of refundable credits for family leave and sick leave for tax year 2021, but it’s no longer available. 

Recovery Rebate Credit

  • This credit is also no longer available. Last tax year, you could apply for a rebate of up to $1,400 for yourself or a dependent, if you hadn’t received your third stimulus payment. Not anymore.

Charitable Donations

  • You’ll have to itemize this tax year if you want to claim this deduction. You can no longer claim up to $300 in cash donations (single) or up to $600 in cash donations (married filing jointly) if you claim the standard deduction. 
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Premium Tax Credit

  • Eligibility standards have changed for this refundable tax credit, which helps low- to moderate-income Americans buy health insurance through the Health Insurance Marketplace. In tax year 2021, receiving unemployment compensation during any week was enough to satisfy household income requirements. That exception didn’t extend into this tax year.

If you’re unsure which deductions and tax credits you qualify for, don’t hesitate to reach out to a tax pro, utilize tax preparation software or check the IRS website.

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