Tax credits can be broken down into three categories: refundable credits, nonrefundable
credits, and partially refundable credits.
Refundable Credits
Reduces a taxpayer’s liability to zero
Any remaining credit left will be added dollar for dollar to the taxpayer’s refund
Taxpayers with no tax liability may file to claim a refundable credit
Common refundable credits include: Additional Child Tax Credit, Earned Income Credit, and Premium Tax Credit.
Nonrefundable Credits
Reduces a taxpayer’s liability to zero
Left over credits will not result in additional refund
Some nonrefundable credits with unused credits will carry forward to future tax years
Common nonrefundable credits include: Adoption Tax Credit, Other Dependent Credit, Lifetime Learning Credit, Child Tax Credit, Child and Dependent Care Credit, credits from form 5695. and Retirement Saver's Credit.
Partially Refundable Credits
Refundable up to a certain amount
The remaining amount of credit is nonrefundable
Common partially refundable credits include: American Opportunity Tax Credit.