refundable tax credit
A refundable tax credit is a benefit where you can receive money back from the government, even if you owe no taxes. It reduces your tax liability, but if the credit exceeds the taxes you owe, the surplus is paid to you as a refund. This means that, unlike non-refundable credits, which only reduce your tax bill to zero, refundable credits can result in a cash payment, helping to provide support to individuals or families, especially those with lower incomes. Examples include the Earned Income Tax Credit and the Child Tax Credit.
Additional Insights
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A refundable tax credit is a benefit that reduces your tax liability and can result in a cash refund if the credit exceeds the amount of tax you owe. For example, if you owe $500 in taxes but qualify for a refundable tax credit of $700, the government will pay you the difference, which is $200. This type of credit is helpful for low-income individuals and families, as it can provide financial assistance beyond just reducing taxes owed. Unlike nonrefundable credits, which only reduce your tax liability to zero, refundable credits can put money directly in your pocket.