Refundable vs Non-Refundable Tax Credits

What they are:

Refundable and non-refundable tax credits are the portion of a tax credit that reduces your tax liability while also garnering partial refunds if applicable. 

Refundable tax credits are the portions that come after your tax credit exceeds your tax liability, in which the government will pay you back either a portion or all of the amount. While the non-refundable tax credits are the portions of tax credits that are calculated as the liability reducing portion, that does not pay out when the liability exceeds the credit. This portion seeks only to reduce the tax liability for individuals but does not pay out a refund during tax returns. Some Credits are hybrid credits having both refundable and non-refundable portions but most are one or the other.

These include:

Refundable:	Non-Refundable:
Child Tax Credit	The Child Tax Credit
Earned Income Tax Credit	Credit for other dependents
Premium Tax Credit	The Dependent Care Credit
American Opportunity Tax Credit	American Opportunity Tax Credit
Fuel Tax Credit	Home Energy credit Residential Clean Energy Credit Energy Efficient Home Improvement Credit

Why are they important:

Knowing the difference is crucial for many as not all tax credits are refundable but most are non-refundable. They also influence the amount the government pays back to individuals in the form of tax returns. Which for many these are a crucial part of their tax year as they rely on that money and knowing which credits are going to pay them back can give better insight to future finances, for the rest, knowing this simply allows for them to claim back more money on their tax returns and for everyone knowing this can help to soothe some of the stress of tax season. 

How can we help you?

Reach out via our phone number, email or website to book a consultation with our talented staff to see how we can help you to better understand how this will affect you and to help you gain insights to your taxes and get them filed properly and securely.