Question

What is the difference between refundable versus nonrefundable credits?

Name two or more refundable credits.

What are the Criterion of American Opportunity Credit and Lifetime Learning Credit?

Answer 1

Refundable credit means it is a tax credit which is refunded to the tax payer, even if the tax payer have tax liability.

Normally a tax credit is non refundable, which means that the credit offsets to any tax liability to the tax payer owes to the government, but if the credit takes this liability amount down to zero, no actual money is refunded.

Examples for refundable credits

1 - Earned Income Tax Credit (EITC)

2 -  Child Tax Credit (CTC)

3 - American Opportunity Tax Credit (AOTC)

Criterion of American Opportunity Credit

• Be pursuing a degree or other recognized education credential.
• Be enrolled at least half time for at least one academic period beginning in the tax year
• Not have finished the first four years of higher education at the beginning of the tax year
• Not have claimed the AOTC or the former Hope credit for more than four tax years
• Not have a felony drug conviction at the end of the tax year

Crieterion of Lifetime Learning Credit

1. You, your dependent or a third party pay qualified education expenses for higher education.
2. You, your dependent or a third party pay the education expenses for an eligible student enrolled at an eligible educational institution.
3. The eligible student is yourself, your spouse or a dependent you listed on your tax return.