Tax Credits

financial statments

Tax credits

A tax credit reduces the amount of tax for which you are liable. Unlike a deduction, which reduces the amount of income subject to tax, a tax credit directly reduces your tax liability.  A tax credit is usually more valuable than a tax deduction of the same dollar amount. There are two categories of tax credits, refundable and nonrefundable.

 Nonrefundable Tax Credits

Most, but not all, tax credits are referred to as nonrefundable credits. A nonrefundable credit can reduce your tax liability to zero (0), but not below.

Nonrefundable tax credits include:

  •      Child and Dependent Care Credit
  •     Education credits (American Opportunity Credit is also partly refundable)
  •     Credit for the Elderly or Disabled
  •     Child Tax Credit
  •     Foreign Income Tax Credit
  •     Residential Energy Credits
  •     Retirement Savings Contribution Credit

 Refundable Tax Credits

A refundable tax credit is a tax credit that can reduce your tax liability below zero (0). Because it is possible to receive a tax refund from this type of credit, they’re referred to as refundable. The easiest way to get your tax refund is to do your taxes online.

Refundable tax credits include:

  •     Earned Income Credit
  •     Excess Social Security Credit
  •     Additional Child Tax Credit
  •     Health Coverage Tax Credit
  •     American Opportunity Credit – partly refundable

 Credits for Businesses

  • Small Business Health Care Credit
  • Business Depreciation Credit
  • Plug-in Electric Vehicle Credit
  • Casualty, Disaster & Theft Losses Credit
  • Advanced Energy Credit for Manufacturers
  • Alternative Motor Vehicle Credit
  • Manufacturers’ Energy Efficient Appliance Credit
  • Plug-In Electric Drive Vehicle Credit (IRC 30D)
  • Research Credit


Are you taking all tax credits? Call J&R Accounting Tax professional for a 30 minute free consultation.


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