Discussion Tax credits may be refundable or nonrefundable. Discuss the difference between these and provide an...

Discussion

Tax credits may be refundable or nonrefundable. Discuss the difference between these and provide an example of each.

Expert Solution

Solution

Non-refundable tax credits are those for which a person can get refund only to the limit the amount the person owes as taxes. Thus the non-refundable tax credit cannot create a refund.

On the other hand in case of refundable tax credits not only the tax owed can be reduced, but also in case if still, credits are pending they can be taken as refund too

For example, if you have an $800 tax credit of earned income tax credit, (which is a refundable tax credit) and you owe $200 only as tax, then the $200 tax will be settled by this credit, and you are entitled to leftover 600 as a refund.

Whereas on the other hand if you have $800 tax credit of adoption tax credit (which is a non-refundable tax credit)

and you owe $200 only as tax, then the $200 tax will be settled by this credit, and you will not be entitled to leftover 600 as a refund

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jeff jeffy answered 1 year ago

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