In a NutshellThink the only way you can get a tax refund is by overpaying your taxes throughout the year? Think again. If you qualify for one or more refundable tax credits, you could get a refund even if you didn’t give Uncle Sam more than you owed during the tax year.
This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma. It has been updated for the 2019 tax year.
You might think the less you pay in federal income tax, the less likely you are to qualify for a refund.
But refundable tax credits may give you money back, even if you owe no taxes or wouldn’t be receiving a refund otherwise.
All tax credits reduce the amount of tax you owe, dollar for dollar. So a $3,000 credit, for example, could reduce the amount of tax you owe by $3,000. If that $3,000 credit is refundable, and your tax bill is only $2,000, you could get $1,000 back.
Here are some tax credits that could help your bottom line on your 2019 tax return. Every credit has certain qualifications you must meet in order to receive it. Be sure you find out what those are before you try to claim any credits.
- Earned income tax credit
- Premium tax credit
- American opportunity tax credit
- Additional child tax credit
1. Earned income tax credit
What it is: A refundable tax credit designed to help low- and moderate-income workers.
To qualify: You must meet adjusted gross income limits to qualify for the earned income tax credit. The AGI threshold for qualifying depends on your filing status and number of qualifying children you have. For example, single filers with one child must have an AGI of $41,094 or less to qualify for the credit.
How much the credit is worth: The credit amounts range from a minimum of $529 for qualifying filers with no children to a maximum of $6,557 for qualifying filers with three or more children.
2. Premium tax credit
What it is: A credit to defray health insurance premium costs for individuals and families who purchase health insurance through the Health Insurance Marketplace.
To qualify: You must meet income requirements to qualify for the credit. And you can’t be claimed as a dependent by anyone else or file as married filing separately (though there are exceptions). You must be insured through the Health Insurance Marketplace, unable to get affordable coverage through an employer-sponsored plan and ineligible for coverage through a government program. And you must have paid premiums not covered by advance-credit payments.
How much the credit is worth: Generally, the credit is worth the premium amount for the second-lowest-cost silver plan available to you through the marketplace. But the credit can’t exceed the actual amount you pay in premiums for the plan you’ve chosen.
3. American opportunity tax credit
What it is: A per-student refundable tax credit for qualified education expenses during the first four years of higher education.
To qualify: You, your spouse or dependent must be pursuing a degree or other recognized education credential; be enrolled at least half time for at least one academic period that begins during the tax year; be in the first four years of education; not have a felony drug conviction; and have modified adjusted gross income of less than $90,000 or less or $180,000 or less if you’re married filing jointly. (For full credit, modified AGI must be $80,000 or less, and $160,000 or less if you’re married filing jointly.)
How much the credit is worth: Up to $2,500 per eligible student, depending on income and expenses. The credit can give you 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000. If the credit reduces the tax you owe to zero, you can get 40% of the credit balance (up to $1,000) back as a refund, making the AOTC a partially refundable credit.
4. Additional child tax credit
What it is: The additional child tax credit is the refundable portion of the child tax credit.
To qualify: If you have one or more children younger than 17, and meet all qualifications, you might be able to claim the additional child tax credit. Your modified adjusted gross income must be less than $200,000 to get the full credit and less than $400,000 for married couples filing jointly. If your income exceeds those amounts, your credit will be reduced until it phases out entirely.
How much the credit is worth: The child tax credit is worth a maximum of $2,000 per qualifying child. Up to $1,400 per child can be refundable as the additional child tax credit.
Every tax credit you’re eligible for is valuable because it can reduce the amount of tax you’ll owe. But if you qualify for a refundable tax credit, it could increase any tax refund Uncle Sam might owe you. Or you may receive a refund even if you didn’t have to pay any federal income tax on your return.
Don’t forget you also have the option of taking deductions, which reduce your taxable income. You can either choose to take the standard deduction or itemize your deductions if that will give you a greater tax benefit.
The biggest caveat of refundable credits? You have to file a federal income tax return to get them.
Christina Taylor is senior manager of tax operations for Credit Karma. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.