Refundable tax credit is a tax benefit that can potentially result in a refund from the government even if the taxpayer has no tax liability. It creates the possibility of a negative tax liability.
A refundable tax credit works by reducing the amount of tax owed by an individual or business and potentially resulting in a cash refund if the credit amount exceeds their tax liability.
Examples of refundable tax credits include, Earned Income Tax Credit (EITC), Child Tax Credit (CTC), Savers Credit, American Opportunity Tax Credit (AOTC) and Premium Tax Credit (PTC).
Eligibility for credits depends on the income level, family size, and specific criteria outlined by the tax code, with the aim of assisting low-to-moderate income individuals and families.
Benefits of credits include providing financial support to low-income families, reducing poverty rates & stimulating economic growth by putting money back into the hands of those who need it most.