Refundable vs Non-Refundable Tax Credit

A tax credit is subtracted from the amount of tax due and is more valuable than a tax deduction which reduces the income subject to tax. 

A non-refundable tax credit can only take your tax liability to zero. 

If there is any credit left, it is lost or is non-refundable. 

A refundable tax credit can take your tax due to zero and if there is any credit left, it is refunded to you. 

For example, if the Child Tax Credit was $6,000 per qualifying child and a family had two qualifying children with a tax due of $1,000, they would get a refund of $11,000. 

If the Child Tax Credit was instead a non-refundable tax credit, they would have gotten a refund of $0.00. 

According to the IRS, in 2022, they paid out $26 billion in tax credit overpayments (refunds). 

Critics of refundable tax credits argue that the IRS should not deliver social and economic benefits through the tax code.