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11788: Refundable vs. Nonrefundable Credits


1040 Individual

What is the difference between a refundable and nonrefundable credit? What are some examples? 

Nonrefundable 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).

Nonrefundable credits include:

  • Child and Dependent Care Credit (Form 2441) (Note: For tax year 2021, this credit is refundable in certain cases.)
  • Child Tax Credit (Note: For tax years 2020, 2022, and 2023, this credit is nonrefundable; this credit is refundable in 2021.)
  • 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)
  • Adoption Credit (Form 8839)

Refundable credits include:

  • American Opportunity Credit (Form 8863, 40% is refundable)
  • Child Tax Credit (tax year 2021 only) 
  • 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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