Are the credits refundable or nonrefundable

The retrieved information provides a detailed explanation of the nature of various tax credits, distinguishing between refundable and nonrefundable credits.

1. Nonrefundable Credits:
   • Nonrefundable credits can only be used to reduce a taxpayer's tax liability to zero. Any excess amount of a nonrefundable credit cannot be refunded to the taxpayer. Examples of nonrefundable credits include:
     • Child Tax Credit: Generally nonrefundable, reducing the taxpayer's tax liability.
     • Energy Efficient Home Improvement Credit and Residential Clean Energy Property Credit: Both are nonrefundable personal tax credits.
     • Child and Dependent Care Credit: Reduces tax liability but is nonrefundable.
     • Foreign Tax Credit, Investment Credit, Jobs Credit: These are traditional nonrefundable credits.
2. Refundable Credits:
   • Refundable credits can reduce a taxpayer's tax liability below zero, resulting in a refund of the excess amount. Examples of refundable credits include:
     • Earned Income Tax Credit (EITC): Refundable for moderate- and low-income taxpayers.
     • American Opportunity Tax Credit: Partially refundable, allowing a refund of 40% of any remaining amount of the credit, up to $1,000.
     • Child Tax Credit (for taxpayers with three or more qualifying children): Refundable to the extent that the taxpayer's Social Security taxes exceed the taxpayer's earned income credit.
3. Hybrid Credits:
   • Some credits have both refundable and nonrefundable components. For instance:
     • Child Tax Credit: While generally nonrefundable, it has a refundable portion under section 24(d) for taxpayers with three or more qualifying children.

In summary, tax credits can be either refundable or nonrefundable. Nonrefundable credits reduce tax liability but do not result in a refund if they exceed the tax liability. Refundable credits can result in a refund if they exceed the tax liability. Some credits, like the Child Tax Credit, have both refundable and nonrefundable components depending on specific conditions.

Sources:
SCA 200235031
FS-2024-10
Huntsberry, Howard Y., et ux. v. Commissioner, 83 T.C. 742
CCA 199948027
FS-2023-9
Murphree, Terence H., et ux. v. Commissioner, 87 T.C. 1309