Understanding Refundable Tax Credits
- February 15, 2022
- Posted by: CKH Marketing
- Category: Tax tips
What is a Refundable Tax Credit?
A refundable tax credit can be applied to your tax bill and in some cases can generate a negative federal tax liability, meaning that your refundable tax credit can create a federal tax refund. For example, if you owed $1,000 in taxes and qualify for a $1,200 refundable credit, you would receive a $200 refund.
How Do Refundable Tax Credits Work?
It is important to note that taxpayers may find that applying nonrefundable credits and tax deductions to their tax bill first may leave them with zero taxes due. With that, even if a taxpayer has no taxes due, taxpayers can still apply any refundable credits they qualify for and can receive the amount of the credit as a refund. For example, if a taxpayer has zero taxes due on their bill, and qualifies for a $1,000 credit, they will receive the entire $1,000 as a refund.
Important Things to Note About Refundable Credits:
One important thing to note about refundable tax credits are that each credit has different qualifications. This means that all tax credits come with a specific set of qualifications that a taxpayer will need to meet in order to claim a credit. Some common qualifications include:
- an income level within a certain range,
- family size, or
- a requirement that the taxpayer had some earned income.
While some credits are specifically designed to aid lower-income taxpayers, others have higher income thresholds. Many of the credits have a step scale in which taxpayers with lower incomes are eligible for a larger credit than taxpayers at the higher end of the income scale.
Another important thing to note about refundable credits is that the available credits change from year to year. It is not guaranteed that a credit will be available every year. As Congress can choose to extend or terminate many of the tax credits.
Refundable credits can play a valuable role in your tax return, so if you have any questions or concerns about refundable tax credits, CKH Group is here to help you! You can reach out here to book a free consultation or you can contact us at 770-495-9077 or send us an email at firstname.lastname@example.org.
The above article only intends to provide general financial information and is based on open-source facts, it is not designed to provide specific advice or recommendations for any individual. It does not give personalized tax, financial, or other business and professional advice. Before taking any form of action, you should consult a financial professional who understands your particular situation. CKH Group will not be held liable for any harm/errors/claims arising from the articles. Whilst every effort has been taken to ensure the accuracy of the contents, we will not be held accountable for any changes that are beyond our control.