A tax credit reduces the amount of tax for which you are liable.
Unlike a deduction, which reduces the amount of income subject to
tax, a tax credit directly reduces your tax liability.
A tax credit is usually more valuable than a tax deduction of the
same dollar amount. There are two categories of tax credits,
refundable and nonrefundable.
Most, but not all, tax credits are referred to as nonrefundable
credits. A nonrefundable credit can reduce your tax liability to
zero (0), but not below. You must have tax liability on line 46 of
Form 1040, line 18 of Form 1040A, or line 43 of Form 1040NR to
claim a nonrefundable tax credit.
Nonrefundable tax credits include:
A refundable tax credit is a tax credit that can reduce your tax
liability below zero (0). Because it is possible to receive a tax refund from this
type of credit, they're referred to as refundable. The easiest way
to get your tax refund is to do
your taxes online.
Refundable tax credits include: