Nonrefundable Tax Credits
A nonrefundable credit essentially means that the credit can’t be used to increase your tax refund or to create a tax refund when you wouldn’t have already had one. In other words, your savings cannot exceed the amount of tax you owe. For example, if the only credit you’re eligible for is a $500 Child and Dependent Care Expenses credit, and the tax you owe is only $200 -- the $300 excess is nonrefundable. This means that the credit will eliminate the entire $200 of tax, but you don’t receive a tax refund for the remaining $300. All nonrefundable tax credits are listed under the “Taxes and Credits” section of the 1040 and 1040A forms, or under the “Payments, Credits, and Tax” section if using the 1040EZ.