The tax season can be overwhelming for taxpayers due to the different types of taxes. However, the United States offers various tax reduction measures that taxpayers can take advantage of to save money each year and receive the tax refunds they are entitled to. This article introduces some common tax credits and deductions available to NYC residents when filing their income taxes.
Tax deduction & tax credits
There are two common tax benefits in the U.S., tax deduction and tax credit. There is a difference between the two: A tax deduction reduces your taxable income by subtracting the deduction amount from it. In contrast, a tax credit directly reduces the tax you owe or increases your tax refund by subtracting the credit amount from your tax liability. Some tax credits may even qualify you for a refund, even if you do not owe any taxes.
For example, suppose your annual taxable income is $80,000 with an assumed tax rate of 20%. If you have a tax deduction of $5,000, your tax payable would be $15,000 ($80,000 – $5,000) x 20%. However, if you have a tax credit of $5,000, your tax payable would be reduced to $11,000 ($80,000 x 20% – $5,000).
You must file federal and New York State tax returns to claim the tax credit. If your household income is $80,000 or less, or you are a single person earning $56,000 or less in 2022, you may be eligible to file your taxes for free in NYC and keep your full refund. More information can be found in our NYC Free Tax Preparation Programs with Chinese Language Services.
The tax deduction is divided into standard deduction and itemized deduction. In short, the difference between the two is that the standard deduction lowers a fixed amount of deduction based on your filing status, and the itemized deduction is made up of expenses that qualify for the deduction, which can include medical expenses, state and local taxes, home mortgage interest, gifts to a qualified charity, theft losses, work expenses, etc. You can choose the way that gives you the lowest overall tax. Refer to this page for details.
There are refundable and non-refundable tax credits. If you have a refundable tax credit, and you owe less tax than the credit, you may get more tax back for it. Examples of refundable or partially refundable tax credits include Earned Income Tax Credit (EITC), Child Tax Credit (CTC), Child and Dependent Care Credit (CDCC), New York State Child and Dependent Care Credit (NYS CDCC), and the new New York City Child Care Tax Credit (NYC CCTC).
Will the tax credit affect my other public benefits?
The New York City Bureau of Consumer and Worker Protection states that in most cases, claiming the tax credit will not affect the eligibility for benefits such as Food Stamp Program (SNAP), Social Security Income (SSI), Medicaid, Temporary Assistance for Needy Families (TANF), public housing, or housing subsidies. The above programs do not consider tax credits to be income when reviewing applicant eligibility. However, the tax credits may be considered as your financial resources, if the money is not spent within certain time frames when you apply for certain benefits.
Common tax credit items
The federal, state and city governments all provide tax credits. The tax credits offered by NYC can offset some of your taxes owed on city income, but will not offset any owed state income tax.
- Earned Income Tax Credit (EITC): This program is a federal, state, and New York City tax credit for qualified families, non-custodial parents, and those who work full-time, part-time or self-employed. Most eligible New Yorkers receive an average of $2,400 in combined EITC benefits, which can potentially be worth up to $11,000 in total.
- See this page for federal EITC eligibility.
- See this page for eligibility for the New York State EITC. NYS EITC eligibility is similar to federal, usually 30% of the federal EITC. But due to policy adjustments, the eligibility for the state EITC depends on your recalculated Federal Adjusted Gross Income (FAGI).
- The New York City EITC cap increases from 5% of the federal income tax credit to 10% to 30% of the federal level in the 2022 tax year. The eligibility also depends on your recalculated Federal Adjusted Gross Income. See this page for more details.
- Child Tax Credit (CTC): The Child Tax Credit is a federal tax credit that helps families reduce the daily expenses of child raising. For the tax year 2022, when filing your taxes in 2023, the Child Tax Credit (CTC) can be worth up to $2,000 per qualifying child under the age of 17. There are no advance prepayments of CTC required for the 2022 tax year. The credit is refundable for up to $1,400. See this page for more details.
New York also has a state child tax credit called the Empire State Child Tax Credit. This program is generally equivalent to 33% of the federal Child Tax Credit and the Additional Child Tax Credit (ACTC). However, because of policy adjustments, the eligibility for the state child tax credit depends on your recalculated Federal Adjusted Gross Income. See this page for details.
- Child and Dependent Care Credit (CDCC): This program is a tax credit provided by the federal, New York State, and New York City for eligible families to ease the burden of the child or adult-dependent care.
- The federal CDCC is designed to help families pay for child care for children under 13, or for the care of adult dependents who are physically or mentally unable to care for themselves. For the 2022 tax year, filers may be eligible to claim up to $3,000 for caring services for one eligible person, up to $6,000 for caring services for two or more eligible people, and to be reimbursed up to 50% of these fees. See this page for details.
- Eligibility for the New York State CDCC is similar to the federal one. However, due to policy adjustments, eligibility for the state credit depends on your recalculated Federal Adjusted Gross Income. See this page for details.
- The NYC Child Care Tax Credit (CCTC) is a tax credit that helps families with incomes under $30,000 pay for child care for children under 4 years old. The program typically provides 75% of the state Child and Adult Dependent Care Credit. See this page for details.
- NYC Household Credit: If you are not a dependent claimed on another taxpayer’s federal income tax return, you may be eligible for the NYC Household Credit. This credit is available to New York City residents and residents who live in New York City for part of the year. The amount of the credit is determined by your income and filing status. Credits range from $15 to $210, depending on your filing status and family size. See this page for details.
- NYC School Tax Credit: This credit is available to New York City residents who are not dependents claimed on another taxpayer’s federal income tax return, or residents who live in New York City for part of the year. If you’re married, file jointly, and earn $250,000 or less, you can get a refundable credit of $125. All other taxpayers with incomes below $250,000 can get a refundable credit of up to $63. If you earn more than $250,000 but less than $500,000, you may be eligible for a small school tax credit. See this page for details.
For more tax incentive policies, please log on to the website of the New York State Department of Taxation. If you have any questions, you can also consult a professional accountant.
Translation from Chinese into English provided by Sicheng Wan.