Refundable vs. Nonrefundable Tax Credits

Question 1

Difference between a refundable and nonrefundable tax credit?

Answer 1

A refundable tax credit reduces what you owe and may give you a refund.

A nonrefundable tax credit reduce what you owe, but may not give you a refund.

Question 2

Refundable Credit or Nonrefundable Credit?

Child Tax

What is the amount if any?

They must be under the age of 17 to receive this tax credit

Answer 2

Refundable; $2,000 limit

Question 3

Refundable Credit or Nonrefundable Credit?

Child and Dependent Care

What is the maximum allowable amount if any?

Answer 3

Nonrefundable; 20% - 35% of $3,000 (one child) or $6,000 (two or more children)

Question 4

Refundable Credit or Nonrefundable Credit?

Elderly and Permanetly Disabled

What is the amount if any?

Answer 4

Nonrefundable; 15% of eligble Income less social security and1/2 excess of AGI over $7,500

Base Amounts Single ($5,000) MFJ ($7,500)

Question 5

Refundable Credit or Nonrefundable Credit?

Earned Income

What is the amount if any?

Answer 5

Refundable

Question 6

Refundable Credit or Nonrefundable Credit?

Adoption

What is the amount if any?

Answer 6

Nonrefundable; $16,810

Note that the excess can be carried forward up to 5 years. Phase-out range $252,000 - $292,000

Question 7

Refundable Credit or Nonrefundable Credit?

Excess Social Security Tax

What is the amount if any?

Answer 7

Refundable

This means excess can be claimed as a credit (i.e. a reduction) to income tax, ONLY if that excess resulted from correct withholding by 2 or more employers. If just 1 employer, the employer must adjust the excess.

Question 8

Refundable Credit or Nonrefundable Credit?

General Business

What is the amount if any?

Answer 8

Nonrefundable; up to $25,000 and 75% of the excess of the credit

Question 9

Refundable Credit or Nonrefundable Credit?

Federal income Tax Withheld (Form W-2)

What is the amount if any?

Answer 9

Refundable

Question 10

Refundable Credit or Nonrefundable Credit?

Foreign Tax

What is the amount if any?

Answer 10

Nonrefundable; Limited to the lesser of foreign taxes paid or foreign tax credit limit (formula)

Question 11

Refundable Credit or Nonrefundable Credit?

American Opportunity (AOTC)*

What amount is refundable? What amount is nonrefundable?

Answer 11

Refundable; 40% or $1,000
Nonrefundable; up to $2,500

$2,500 maximum credit x 40% = $1,000

Question 12

Refundable Credit or Nonrefundable Credit?

Lifetime Learning (LLC)

What is the amount if any?

Answer 12

Nonrefundable; up to $2,000

Question 13

Refundable Credit or Nonrefundable Credit?

Retirement Savings Contribution

What is the amount if any?

Answer 13

Nonrefundable; $2,000 limit for a Traditional or Roth IRA

Note: Eligible taxpayers are at least 18 years old, not a full-time student, and not a dependent of another taxpayer

Question 14

Tax Rate

Net Investment Income (NII)

Answer 14

3.8% of the lesser of taxpayers net inestment income or the excess of the MAGI over threshold amount

Question 15

Coverdell Education Savings Account

Answer 15

Nonrefundabale; up to $2,000 annually

Question 16

Work Opportunity Credit

Note this credit is available to employers who hire employees from a targeted group (e.g. 18-24 from poor families, vietnam veterans, certain food stample recipients)

Answer 16

Nonrefundable;
40% of first $6,000 of first year’s wages
40% of first $3,000 to certain summer youth

Question 17

Small Employer Retirement Plan Startup Costs Credit

Answer 17

Nonrefundable;
Greater of 100%/50% or $1,000
Lesser of $250 per employee, but not exceeding $5,000

Less than 50 employees - 100% or $1,000
Between 51 and 100 employees - %50 or $1,000

Question 18

Energy Efficient Home Improvements Credit

Answer 18

Nonrefundable; up to 30% (or $1,200) of energy improvements

Question 19

Residential Clean Enery Credit

Answer 19

Nonrefundable; up to 30% of for install of qualifying solar, wind, and geothermal

Question 20

Clean Vehicle Credit

Answer 20

Nonrefundable;
New EVs - up to $7,500
Used EVs - $4,000