Refundable Versus Non-Refundable Tax Credits
TWO TYPES OF CREDITS
There are two types of credits: non-refundable and refundable. Non-refundable tax credits can reduce tax owed to zero, but can’t be used to get a refund. A refundable credit, can reduce your tax below zero and provide you with a refund.
If the tax credit is a refundable credit, you would receive a tax refund if the credit exceeds the amount of your tax liability.
Note: a tax credit is different from a tax deduction. A tax credit reduces your tax liability, where a tax deduction reduces the amount of your taxable income.
NON-REFUNDABLE TAX CREDITS
- Adoption Expense Credit
- Child and Dependant Care Credit
- Credit for the Elderly and Disabled
- Credit for Qualified Alternative Fuel Vechicles
- Hybrid Vechicle Credit
- Credits for Energy-saving Home Improvements
- American Opportunity Credit
- Lifetime Learning Tax Credit
- Retirement Saver's Tax Credit
- Foreign Tax Credit
- Child Tax Credit (generally not refundable)
REFUNDABLE TAX CREDITS
- Earned Income Tax Credit
- Credit for Estimate Tax Payments
- Credit for Taxes Withheld from Salaries and Wages
- First-Time Homebuyer Credit
- Making Work Pay Credit
- Health Coverage Tax Credit
- Additional Child Tax Credit (partially refundable)
- Alternative Minimum Tax (AMT) Credit (partially refundable)
TAX PLANNING IS KEY
CPAs say year-round tax planning is the key to taking advantage of all available tax credits and deductions.
To find out more about these credits, contact a local CPA.
