what are refundable tax credit?

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  • 1 decade ago
    Favorite Answer

    In addition to the 1st commenter, let me explain what a non-refundable tax credit is.

    Non-refundable tax credits can reduce your tax liability to zero but no further than that.

    Refundable tax credits not only can bring any tax liability to zero but it can also generate a tax refund (or create a larger refund if a refund situation already exists prior to the credit).

    The EIC is one example of a refundable tax credit...I believe (without checking) there are maybe 1 or 2 additional ones also. However, these credits are largely impossible for most normal people to qualify for as they are largely for the poorest of the poor. I know that statement sounds harsh, but its true.

  • Judy
    Lv 7
    1 decade ago

    If a credit is refundable, that means that you get it even if you don't owe taxes - if it's more than the tax you owe, you get the extra sent to you as a refund.

    Two refundable credits are EIC and the Additional Child Tax Credit. Since the EIC is available to people with 2 or more kids making over $38,000, I don't know if you can call that "the poorest of the poor" as the previous responder does. Not that it's wealthy, but not that bad either.

  • 1 decade ago

    Welfare disguised as a tax credit.

    The answer the IRS would give is a credit that can result in a refund of more than you paid though withholding and estimated payments. The most well know is the EIC (Earned Income Credit).

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