nonrefundable tax credit

A nonrefundable tax credit reduces the amount of tax you owe but cannot exceed your tax liability. For example, if you owe $500 in taxes and receive a $600 nonrefundable credit, your tax bill is reduced to zero. However, you won’t receive any leftover credit as a refund; the extra $100 is lost. Essentially, it helps lower your tax bill but won’t give you money back if your credits exceed your taxes owed. Nonrefundable tax credits are often used to promote certain behaviors, such as investing in education or energy efficiency.