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11788: Refundable vs. Non-Refundable Credits


1040 Individual

What is the difference between a Refundable and Non-Refundable Credit? What are some examples? 

Non-refundable credits can only take the tax liability to zero (so that the taxpayer does not owe any tax). They do not create a refund.

Refundable credits can actually produce a refund for the taxpayer, even if the taxpayer does not have a tax liability (owe any taxes).

Non-Refundable Credits include:

  • Child and Dependent Care Credit (Form 2441) Note: in 2021 it is refundable in some cases. 
  • Child Tax Credit  (Drake20 and prior it is non-refundable; shown on Form 8901, if necessary.) Note: in 2021 it is refundable
  • Other Dependent Credit (Wks 8812)
  • Credit for the Elderly or Disabled (Schedule R)
  • District of Columbia First-Time Homebuyer Credit (Form 8859)
  • Education Credits (Form 8863)
  • Foreign Tax Credit (Form 1116)
  • General Business Credit (Form 3800)
  • Minimum Tax Credit (Form 8801)
  • Mortgage Interest Credit (Form 8396)
  • Residential Energy Credits (Form 5695)
  • Retirement Savings Contribution Credit (Form 8880)

Refundable Credits include:

  • American Opportunity Credit (Form 8863)
  • Child Tax Credit (Schedule 8812 in Drake21, is refundable) 
  • Additional Child Tax Credit (Drake20 and prior this produces Schedule 8812, in Drake21, this is shown on Schedule 8812, page 2.)
  • Credit for Federal Tax Paid on Fuels (Form 4136)
  • Net Premium Tax Credit (Form 8962)
  • Earned Income Tax Credit (EIC)
  • Health Coverage Tax Credit (Form 8885)
  • Notice to Shareholder of Undistributed LT Capital Gains (Form 2439)

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