When filing your taxes, you may come across refundable and non-refundable tax credits. But what do these terms mean, and how do they impact your tax return?
Let's break it down. A non-refundable tax credit is a credit that can only be used to reduce your tax liability. If the credit exceeds the amount of taxes you owe, you won't receive a refund for the difference. Some examples of non-refundable tax credits include the child and dependent care credit, the retirement savings contribution credit, and the lifetime learning credit.
On the other hand, a refundable tax credit is a credit that can be used to reduce your tax liability and also result in a refund if the credit exceeds the amount of taxes owed. Some examples of refundable tax credits include the earned income tax credit, the additional child tax credit, and the American opportunity tax credit.
So, when it comes to tax credits, it's important to know whether they are refundable or non-refundable, as this can impact your tax return. Make sure to consult with a tax professional or use a reputable tax software program to ensure that you are claiming all of the credits you are eligible for.
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Refundable vs Non Refundable Tax Credit
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