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What Are Refundable Tax Credits vs. Non-Refundable Tax Credits?
Posted By Jim On 07/28/2009 @ 12:34 pm In Personal Finance | 12 Comments
Last year, I wrote about the difference between a tax credit and a tax deduction . Like marginal tax rates , it’s a tax topic that is often misunderstood because, well, our tax code is confusing!
Today, I want to talk about refundable tax credits vs. non-refundable tax credits, because it’s been in the news a lot lately after the big stimulus bill was passed. If you’re unsure what the difference is between a tax credit and a tax deduction, I invite you to review my article from 2008.
A tax credit can be refundable or non-refundable.
To better explain the difference, I’ll have to start with an example:
That’s why refundable tax credits are so awesome… unfortunately, there aren’t very many refundable tax credits. In fact, as of this writing there are only five – the Additional Child Tax Credit , the Earned Income Credit , the Excess Social Security and RRTA Tax Withheld Credit , the First-time Homebuyer credit , and the Health Coverage Tax Credit . Every other credit is non-refundable.
It was a hot topic during the 2008 Presidential campaign  as the party nominees battled each other over how socialist each candidates’ tax plans were. One of the most interesting statistics I learned from that period was that an estimated 37.8% of tax filers in 2009 would pay zero or negative tax!
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 difference between a tax credit and a tax deduction: http://www.bargaineering.com/articles/tax-credit-vs-tax-deduction.html
 Additional Child Tax Credit: http://www.irs.gov/publications/p972/ar02.html#en_US_publink100012090
 Earned Income Credit: http://www.irs.gov/taxtopics/tc601.html
 Excess Social Security and RRTA Tax Withheld Credit: http://www.irs.gov/taxtopics/tc608.html
 First-time Homebuyer credit: http://www.irs.gov/taxtopics/tc611.html
 Health Coverage Tax Credit: http://www.irs.gov/individuals/article/0,,id=109915,00.html
 hot topic during the 2008 Presidential campaign: http://online.wsj.com/article/SB122454768040352279.html
Thank you for reading!