MANAGEMENT

Detailed explanation-1: -A non-refundable tax credit is a tax credit that can reduce a taxpayer’s liability only to zero. 1 Generally, the amount of a non-refundable credit that exceeds a taxpayer’s liability is automatically forfeited by the taxpayer.

Detailed explanation-2: -Taxpayers must meet additional requirements to claim this credit. A nonrefundable tax credit allows taxpayers to lower their tax liability to zero, but not below zero. The child tax credit is nonrefundable. A refundable tax credit allows taxpayers to lower their tax liability to zero and still a receive a refund.

Detailed explanation-3: -Nonrefundable tax credits In other words, your savings cannot exceed the amount of tax you owe. For example on your 2022 tax return, if the only credit you’re eligible for is a $500 Child and Dependent Care Credit, and the tax you owe is only $200-the $300 excess is nonrefundable.

Detailed explanation-4: -Deductions can reduce the amount of your income before you calculate the tax you owe. Credits can reduce the amount of tax you owe or increase your tax refund. Certain credits may give you a refund even if you don’t owe any tax.

Detailed explanation-5: -REFUNDABLE VERSUS NONREFUNDABLE TAX CREDITS The maximum value of a nonrefundable tax credit is capped at a taxpayer’s tax liability. In contrast, taxpayers receive the full value of their refundable tax credits. The amount of a refundable tax credit that exceeds tax liability is refunded to taxpayers.