Tax Credits - Definitions

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 credits
	Non-refundable credits

Non-Refundable Tax Credits

Most, but not all, tax credits are referred to as non-refundable credits. A non-refundable credit is a tax credit that 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 non-refundable tax credit.

Non-refundable tax credits include:

	Child & Dependent Care Credit
	Education Credits
	Credit for the Elderly or Disabled
	Child Tax Credit
	Adoption Credit
	Foreign Tax Credit
	Residential Energy Credit
	Retirement Savings Contribution Credit

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 based on these types of credits, the credits are referred to as refundable.

Refundable tax credits include:

	Earned Income Credit
	Excess Social Security Credit
	Additional Child Tax Credit
	Health Coverage Tax Credit

Send mail to Diane Offutt with questions or comments about this web site.
Copyright © 2003 Accounting Connections, LLC

Web Site Designed by: Diane Offutt (770) 516-5987 or (770) 846-7799
Last Modified: 05/01/2008

Send mail to Diane Offutt with questions or comments about this web site. Copyright © 2003 Accounting Connections, LLC

Web Site Designed by: Diane Offutt (770) 516-5987 or (770) 846-7799 Last Modified: 05/01/2008

Send mail to Diane Offutt with questions or comments about this web site.
Copyright © 2003 Accounting Connections, LLC

Web Site Designed by: Diane Offutt (770) 516-5987 or (770) 846-7799
Last Modified: 05/01/2008