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
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.
Nonrefundable Tax Credits
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:
Refundable Tax Credits
A refundable tax credit is a tax credit that can reduce
your tax liability below zero (0). Because it is possible
to receive a refund from this type of credit, they're referred
to as refundable.
Refundable tax credits include: