Tax Credits: Refundable and Non-refundable

Which tax credits are you entitled to? Can you receive them as a monetary refund?

There are two types of tax credits: Refundable (which can be received as cash in the form of a tax refund) and Non-refundable (which reduce your tax liability but are not paid out as cash).

Refundable Credits

These credits can result in money back, even if you do not owe any tax.

• Child Tax Credit (CTC): Its refundable portion is called the Additional Child Tax Credit. The credit is up to $2,000 per child, or up to $1,700 per child as a refund (the refund amount depends on income). To qualify for this credit, the following conditions must be met:
  • The child must be under 17 years old.
  • The child must have a valid SSN. If the SSN indicates it is not valid without work authorization, the child must obtain work authorization. This is very important and is the most common mistake.
  • The child must be listed as a dependent on your tax return.
• Earned Income Tax Credit (EITC): For families with low to moderate income. The credit amount can range from $649 to $8,046, depending on income, marital status, and number of children. There are also conditions for receiving this credit:
  • The child must be under 19 years old (or under 24 if a student).
  • Earned income must not exceed $68,675 (with 3 children), $64,430 (2 children), or $57,554 (1 child).
  • Investment income must not exceed $11,600.
  • All family members must have valid SSNs and be U.S. residents.
  • Filing status must be Married Filing Jointly. If filing separately, you lose the right to this credit.
• American Opportunity Tax Credit (AOTC): A tax credit for higher education expenses, which is partially refundable. The total credit is up to $2,500, with a refundable portion of up to $1,000. It can only be used for 4 years and also has a set of conditions:
  • It must be for a college or university (not online courses) from which you receive Form 1098-T.
  • The purpose of the study must be to obtain a degree.
  • Annual income must not exceed $80,000 (or $160,000 for married couples). The credit amount is reduced for income between $80,000 and $90,000. After $90,000, you lose the right to this credit.
  • You must not have been convicted of a drug-related felony.

Non-Refundable Credits

These credits reduce your tax liability but are not payable as a monetary refund.

• Other Dependent Credit: A credit for your dependents aged 18 or older who have an SSN or ITIN. The credit amount is $500.
• Child and Dependent Care Credit: A credit for expenses such as daycare, summer camp, nanny, or after-school care. The credit is 20% of up to $3,000 in expenses, for a maximum of $600. To receive this credit, both parents must be working or attending school full-time and must file a joint return.
• Lifetime Learning Credit (LLC): A credit for higher education expenses. Unlike the AOTC, this credit is non-refundable. The credit amount is 20% of the first $10,000 in educational expenses, for a maximum of $2,000.
• Foreign Tax Credit (FTC): A credit for taxes paid in another country. A reminder that if you are a U.S. tax resident, you are obligated to report all income from anywhere in the world.
• Clean Vehicle Tax Credit: A credit for the purchase of an electric vehicle. Up to $7,500 for a new purchase, and up to $4,000 for a used purchase. There are a number of conditions for receiving this credit and a list of eligible vehicles.
• Residential Clean Energy Credit: A credit for installing solar panels or other energy-saving equipment. The credit amount is 30% of the cost.