What is a nonrefundable tax credit?
A nonrefundable tax credit is one of the two types of personal tax credits that individual taxpayers can qualify for. A nonrefundable tax credit means you get a refund only up to the amount you owe. As you can see in the example below, even though the taxpayer has applicable credits of $150, their taxable income is only $100, so the amount of nonrefundable tax credits applicable would be $100.
Refundable tax credits can result in a refund because the taxpayer can receive credit in excess of their tax liability.
Common nonrefundable credits include the foreign tax credit, retirement savings credit, elderly & permanently disabled tax credit, lifetime learning credit, adoption credit, general business credit, etc. The visual below lists out a majority of the refundable and nonrefundable credits.
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