Nonrefundable Tax Credit
A nonrefundable tax credit can reduce tax liability to zero but cannot generate a refund. Any excess credit beyond the tax owed is lost (unless carryforward rules apply).
Exam Tip
Nonrefundable = reduces tax to zero only, no refund. Examples: child/dependent care, lifetime learning, adoption, saver's credit. Compare with refundable credits (EITC, ACTC).
What is a Nonrefundable Credit?
A nonrefundable credit reduces your tax dollar-for-dollar but only down to zero. Unlike refundable credits, any excess is not paid back as a refund.
Nonrefundable vs. Refundable Credits
| Feature | Nonrefundable | Refundable |
|---|---|---|
| Reduces tax to zero | Yes | Yes |
| Excess paid as refund | No | Yes |
| Examples | Child/dependent care, Lifetime Learning | EITC, Additional CTC |
Common Nonrefundable Credits
| Credit | Maximum Amount |
|---|---|
| Child and Dependent Care | $3,000 (1 child) / $6,000 (2+) |
| Lifetime Learning Credit | $2,000 per return |
| Adoption Credit | $17,280 (2025) |
| Saver's Credit | $1,000 / $2,000 (MFJ) |
| Elderly/Disabled Credit | Varies |
| Foreign Tax Credit | Limited to US tax on foreign income |
Exam Alert
Nonrefundable credits can only reduce tax to zero -- no refund for excess. Know which credits are nonrefundable vs. refundable. The child tax credit is partially refundable (Additional CTC portion).
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Related Terms
Refundable Tax Credit
A refundable tax credit can reduce tax liability below zero, resulting in a refund to the taxpayer. The excess credit amount is paid as a refund even if no tax was owed.
Tax Credit vs Tax Deduction
Tax credits reduce tax liability dollar-for-dollar and are more valuable than tax deductions, which only reduce taxable income by a percentage based on your marginal tax bracket.
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