Tax credit

From Wikicpa

Within the United States tax system, a tax credit is an item which is treated as a payment already made towards taxes owed. It reduces tax liability dollar-for-dollar, in contrast to a tax deduction, which reduce taxable income.

Tax credits may be characterized as either refundable or non-refundable. Refundable tax credits can reduce the tax owed below zero, and result in a net payment to the taxpayer beyond their own payments into the tax system, appearing to be a moderate form of negative income tax. Examples of refundable tax credits include the earned income tax credit and the additional child tax credit.

A non-refundable tax credit cannot reduce the tax owed below zero, and hence cannot cause a taxpayer to receive a refund in excess of their payments into the tax system. Some examples of non-refundable tax credits are the Hope and Lifetime Learning educational tax credits.