Refundable Tax Credits Hub
Refundable tax credits are the most powerful tools in the tax code. They can reduce your tax to zero and still generate a refund even when you have little or no withholding. Use this hub to understand which credits you may qualify for and how they can impact your refund.
Always verify with the latest IRS instructions and consider speaking with a qualified tax professional about your specific situation.
What Is a Refundable Credit?
A refundable tax credit can generate a refund even if your tax liability is reduced to zero. If the credit is more than your tax, you may get the difference back as a refund.
Who Benefits the Most?
Typically, low- to moderate-income workers and families with children, students, and individuals purchasing health insurance through the Marketplace are most likely to benefit.
Current vs. Past Credits
Some refundable credits apply every year, while others were temporary (such as Recovery Rebate Credits) or only refundable for specific tax years.
Key Refundable Tax Credits (Individual Taxpayers)
Below are the main refundable (or partially refundable) credits individual taxpayers may see on their federal return. Always confirm year-specific rules in the IRS instructions for that tax year.
Earned Income Tax Credit (EITC)
Form 1040 / Schedule EIC • Refundable
The EITC is a major refundable credit for low- to moderate-income workers. The amount is based on your earned income, filing status, and number of qualifying children.
Basic Qualification
- Have earned income from wages, self-employment, or certain disability payments.
- Meet annual income limits and investment income limits for the tax year.
- Valid Social Security numbers for you, spouse (if filing jointly), and qualifying children.
- Cannot file as Married Filing Separately.
- Must be a U.S. citizen or resident alien all year (with some exceptions for nonresident spouses).
Key Facts
- Size of the credit increases with earned income up to a plateau, then phases out.
- Available even if you owe no tax; may generate a large refund.
- Special rules apply for workers without children, separated spouses, and clergy/military pay.
- Claimed using Schedule EIC if you have qualifying children.
Additional Child Tax Credit (Refundable Portion of CTC)
Form 1040 / Schedule 8812 • Partially Refundable
The Child Tax Credit (CTC) is partly nonrefundable and partly refundable. The refundable portion is often referred to as the Additional Child Tax Credit (ACTC) and may generate a refund even when your tax is zero.
Basic Qualification
- Have at least one qualifying child under age 17 at the end of the tax year.
- The child must have a valid SSN, live with you more than half the year, and meet relationship and support tests.
- Your earned income and AGI must be within IRS limits for that year.
- You must file a tax return, and in many cases have earned income above a minimum threshold for the refundable portion.
Key Facts
- Maximum credit per child and refundable limits change by year; check Schedule 8812 instructions.
- Part of the CTC can reduce your tax to zero; the ACTC portion can then be refunded in cash.
- Subject to income phaseouts based on your filing status.
- Separate rules apply if you lived abroad or had little earned income.
American Opportunity Tax Credit (AOTC – Refundable Portion)
Form 8863 • 40% Refundable (up to annual IRS limit)
The AOTC helps pay for qualified education expenses for an eligible student for the first four years of post-secondary education. Up to 40% of the allowable credit may be refundable.
Basic Qualification
- Student is pursuing a degree or recognized credential.
- Enrolled at least half-time for at least one academic period during the year.
- Has not completed the first four years of post-secondary education before the tax year.
- No more than four tax years of AOTC claimed for that student.
- AGI must be within IRS phaseout range; cannot file MFS; must not be claimed as a dependent by someone else.
Key Facts
- Up to 40% of the credit may be refunded even if you owe no tax (subject to annual dollar limits).
- Qualified expenses include tuition, required fees, and course materials; not room and board.
- Requires Form 1098-T from an eligible educational institution (with some exceptions).
- Different from the Lifetime Learning Credit (which is nonrefundable).
Premium Tax Credit (PTC)
Form 8962 • Refundable
The Premium Tax Credit helps eligible individuals and families cover the cost of health insurance purchased through the Health Insurance Marketplace. It is refundable and can be paid in advance to your insurance company.
Basic Qualification
- You (or a family member) enrolled in a Marketplace plan and are not eligible for other minimum essential coverage (like certain employer plans, Medicare, or Medicaid).
- Household income generally within a specified range of the federal poverty line (FPL) for the year, considering any temporary expansions in law.
- File a federal tax return for the year; if advance payments were made, you must reconcile them on Form 8962.
- Cannot be claimed as a dependent by another taxpayer.
Key Facts
- Advance credit payments lower your monthly premium; the final credit is calculated on your tax return.
- If advance payments were too high, you may have to repay part or all of the excess.
- If you qualify for more credit than was paid in advance, the difference is refunded.
- Household income and family size are critical to the calculation.
Certain Fuel Tax Credits (Off-Highway / Business Use)
Form 4136 • Often Refundable
Certain businesses and farms may claim a credit or refund for federal excise tax paid on fuels used for specific nontaxable purposes (like off-highway business use, farming, or certain buses).
Basic Qualification
- Paid federal excise tax on fuels used in qualifying off-highway business, farming, or other allowed uses.
- Keep detailed records of gallons and usage categories.
- File Form 4136 with your income tax return or, in some cases, claim periodic refunds during the year.
Key Facts
- Primarily affects farmers, trucking companies, construction, and other fuel-intensive industries.
- Often results in a direct refund on the tax return if the credit exceeds tax.
- Rates and eligible uses can change; always check the latest Form 4136 instructions.
Important: Past or Temporary Refundable Credits
Some refundable credits applied only to specific tax years. They may appear on old transcripts or prior-year returns but are not available every year.
- Recovery Rebate Credit – Refundable credit for 2020 and 2021 that reconciled Economic Impact Payments (stimulus checks). No longer available for current tax years, but may still be claimed on late or amended 2020–2021 returns.
- Child and Dependent Care Credit (2021 only) – Temporarily refundable for tax year 2021 under pandemic relief laws; generally nonrefundable again for later years.
- Health Coverage Tax Credit (HCTC) – A refundable credit for certain trade-affected workers and PBGC payees; this credit has expired but can appear on older returns.
Always check the IRS instructions for the specific tax year to see whether a credit is refundable and still in effect.
Refundable Tax Credits – Frequently Asked Questions
Use this FAQ to quickly understand how refundable credits affect your refund and what to watch out for.
How is a refundable tax credit different from a nonrefundable credit?
A nonrefundable credit can reduce your tax to zero, but it cannot create a refund by itself. Any unused amount simply disappears (or, for some credits, may carry to another year). A refundable credit can reduce your tax to zero and then refund any leftover credit to you as part of your refund. For example, if you owe $0 in tax but qualify for a $2,000 refundable credit, you may receive the full $2,000 as a refund.
Can I get a refundable credit if I am not required to file a tax return?
In many cases, yes—but only if you actually file. The IRS does not automatically send refundable credits. If your income is low enough that you are not required to file, you may still choose to file a return to claim credits like the EITC, Child Tax Credit, or Premium Tax Credit. If you don’t file, you generally do not receive the refund.
Why did my refundable credits cause my refund to be delayed?
Refundable credits—especially the Earned Income Tax Credit and refundable Child Tax Credit—are high-risk for fraud and improper payments. By law, the IRS must hold refunds that include EITC or additional child tax credit until a designated date each filing season. Credits may also trigger identity verification, income verification, or PATH Act-related holds. This is common and does not automatically mean you did anything wrong.
Do refundable credits show up on my IRS tax transcript?
Yes. Refundable credits are reflected in your account transcript as transaction codes and dollar amounts. For example, tax credits that increase your refund may appear as TC 766 (refundable credit), TC 764/768 (Earned Income Credit), or other specific transaction codes. They also affect your balance computation line and refund amount. If a credit is reduced or disallowed, you may see offsetting codes and IRS notices.
How far back can I go to claim a refundable credit I missed?
Generally, you must file a return or amended return within the IRS refund statute—typically three years from the original filing deadline for that year—to receive a refund from missed credits. Some credits or special relief provisions may have different rules. If you believe you missed a refundable credit, consider filing or amending before the statute expires.
Are refundable tax credits taxable income?
Most refundable credits, such as the EITC, Child Tax Credit, and Premium Tax Credit, are not taxable as income on your federal return. They reduce your tax or increase your refund. However, in some situations, interest paid to you on a late refund can be taxable. The IRS may issue Form 1099-INT if the interest is large enough, and that interest is reported as income.
Next Steps: Make Your Credits Work for You
Refundable credits can dramatically change your refund outcome. Review your eligibility, keep your records, and compare multiple years if your situation changes (job loss, new child, school, Marketplace insurance, etc.).
- Gather income documents (W-2s, 1099s, 1095-A, tuition statements, childcare records) before you file.
- Use reputable tax software or a qualified tax professional who understands refundable credits.
- Check your IRS account transcripts if your refund is delayed or a credit is adjusted.
This page provides general education only and is not a substitute for personalized tax advice. Always verify your eligibility using official IRS instructions for the specific tax year you are filing.
