What is the Difference Between Refundable, Nonrefundable, and Partially Refundable Credits?

Tax credits can be broken down into three categories: refundable credits, nonrefundable
credits, and partially refundable credits.

Refundable Credits
• Reduces a taxpayer’s liability to zero

• Any remaining credit left will be added dollar for dollar to the taxpayer’s refund

• Taxpayers with no tax liability may file to claim a refundable credit

Common refundable credits include: Additional Child Tax Credit, Earned Income Credit, and Premium Tax Credit.

Nonrefundable Credits
• Reduces a taxpayer’s liability to zero
• Left over credits will not result in additional refund
• Some nonrefundable credits with unused credits will carry forward to future tax years

Common nonrefundable credits include: Adoption Tax Credit, Other Dependent Credit, Lifetime Learning Credit, Child Tax Credit, Child and Dependent Care Credit, credits from form 5695. and Retirement Saver's Credit.

Partially Refundable Credits
• Refundable up to a certain amount

• The remaining amount of credit is nonrefundable

Common partially refundable credits include: American Opportunity Tax Credit.