Refundable Tax Credit
Definition
A tax credit that can reduce your tax liability below zero, resulting in a refund. Even if you owe no taxes, you can receive the credit as a payment. Key refundable credits include the Earned Income Tax Credit, the refundable portion of the Child Tax Credit, and the American Opportunity Credit (40% refundable up to $1,000).
Example
If your tax liability is $500 and you qualify for a $2,000 refundable credit, you'd receive a $1,500 refund.
Related Terms
Tax Credit
A dollar-for-dollar reduction in the amount of tax you owe, more valuable than a...
Earned Income Tax Credit (EITC)
A refundable tax credit for low-to-moderate-income working individuals and famil...
Tax Refund
Money returned to you by the IRS when you've paid more in taxes during the year ...