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)