How a refundable tax credit works
Suppose you owe $800 in federal income tax and you qualify for a $1,500 refundable credit:
$800 tax liability − $1,500 credit = $700 refund
The first $800 reduces your tax liability to $0. Because the credit is refundable, the remaining $700 may be included in your refund.
Refundable vs. nonrefundable tax credits
Tax credits differ in what happens after they reduce your federal income tax liability to $0.
| Credit type | What happens when the credit exceeds your tax liability | Example |
|---|---|---|
| Fully refundable | The remaining eligible amount may be paid as a refund | Earned Income Tax Credit (EITC) |
| Nonrefundable | If your tax credit reduces your tax bill to $0, there’s no additional refund from that credit | Child and Dependent Care Credit (CDCC) |
| Partially refundable | Only a specified portion may be paid as a refund | American Opportunity Tax Credit (AOTC) |
Source: Internal Revenue Service (1,2,3)
Common refundable tax credits
Refundable amounts vary by credit and may depend on your:
- Income
- Filing status
- Household
- Other eligibility rules
The table below compares the maximum amounts available for the 2025 and 2026 tax years.
| Credit | Refundable amount for 2025 | Refundable amount for 2026 |
|---|---|---|
| Earned Income Tax Credit (EITC) | Up to $8,046 with three or more qualifying children | Up to $8,231 with three or more qualifying children |
| Additional Child Tax Credit (ACTC) | Up to $1,700 per qualifying child | Up to $1,700 per qualifying child |
| American Opportunity Tax Credit (AOTC) | Up to $1,000 | Up to $1,000 |
| Premium Tax Credit (PTC) | Varies based on income, household, and Marketplace coverage | Varies based on income, household, and Marketplace coverage |
| Adoption Tax Credit | Up to $5,000 | Up to $5,120 |
Source: Internal Revenue Service (1,2,3,4,5)
Eligibility rules, income limits, and calculations differ by credit. The ACTC, AOTC, and the Adoption tax credit are partially refundable, while the EITC and PTC are fully refundable.
Claiming a refundable credit
You don’t need to owe federal income tax to benefit from a refundable credit, but you must file a tax return to claim your refund, even when your income is below the normal filing threshold.
Note: The Protecting Americans from Tax Hikes (PATH) Act prevents the IRS from issuing refunds that include the EITC or ACTC before mid-February. The delay applies to the entire refund, not only the part related to those credits.
Tax credits vs. deductions
While tax credits and tax deductions can both lower your federal tax bill, they work differently. Deductions reduce the income subject to tax, while credits reduce your tax liability directly.
For example, a $1,000 deduction saves $220 for someone in the 22% bracket. A $1,000 refundable credit reduces tax by the full $1,000 and may produce a refund if the credit exceeds the amount owed.
