Question

Question #4

a) In your own words, describe the differences between Refundable tax credits and non-refundable tax credits.

b) Provide three examples of each of these tax credits.

c) What happens to the non-refundable tax credit if the taxpayer has no taxes payable that year.

Answer 1

a) Taxpayers subtract both refundable and non-refundable credits from the taxes they owe.If refundable credit exceeds the amount of taxes owed the difference is paid as a refund.lf a nonrefundable credit exceeds the amount of taxes is lost.

b) Refundable tax credit examples

1.The earned income tax credit

2.The child and dependent care credit

3.The savers credit

b) Non-refundable tax example

1.Adoption tax credit

2.Foreign tax credit

3.mortgage interest tax credit

c) Non refundable tax credit does not result in a refund to the tax payer