Is That Credit Refundable?

refundable tax credit

There are two different types of : refundable and non-refundable. In general, most tax aren't refundable, but there are a few that can add a little extra back into your pocket at tax time. There's a significant difference between the two types, so it's important to know which category your credit falls into. The Child Tax Credit is a popular credit among parent taxpayers. If you have children, you may be eligible to claim $1,000 per child on your .

Non- reduce the amount of owed to the , and can erase your owed taxes entirely in some cases. So, if you have a tax liability of $1,000 and are eligible to claim a non-refundable tax credit worth $2,000, you'll reduce your taxes to zero, however the IRS keeps any remaining balance. You won't receive any money back, and aren't able to carry it forward to another tax year.

Refundable tax credits work a little differently. In the previous scenario, if the tax credit was refundable, your tax debt would still be reduced to zero, though the remaining balance of $1,000 would be refunded to you. These tax credits help to eliminate your and have an actual refunded amount of the balance on the credit.