Non-Refundable Tax Credit

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DEFINITION of 'Non-Refundable Tax Credit'

A tax credit that can't reduce the amount of tax owed to less than zero. If the credit were able to reduce the amount of tax owed to less than zero, the taxpayer would be entitled to a payment from the government.

Also referred to as a "wastable tax credit."

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INVESTOPEDIA EXPLAINS 'Non-Refundable Tax Credit'

A tax credit is applied to the amount of tax owed by the taxpayer after all deductions are made from his or her taxable income. For example, before credits, if the tax owed to the IRS is $500 and the taxpayer has a tax credit of $200, the total amount owed is $300. If the taxpayer has total non-refundable credits of $600, his or her tax bill will be $0 ($500 tax bill - $600 in non-refundable tax credits). An example of a non-refundable tax credit is the saver's tax credit, which is available to taxpayers who make contributions to retirement savings plans.

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RELATED FAQS
  1. How do I sign up for the saver's tax credit?

    The saver's tax credit is a non-refundable tax credit available to eligible taxpayers in the U.S. who make contributions ... Read Full Answer >>
  2. What are the best free online calculators for calculating my taxable income?

    Free online calculators for determining your taxable income are located at Bankrate.com, TaxACT.com and Moneychimp.com. Determining ... Read Full Answer >>
  3. Can I get a tax credit from conducting research and development?

    It is possible for a company to qualify for a research and development tax credit for conducting research and development. ... Read Full Answer >>
  4. What is the difference between MAGI (modified adjusted gross income) and adjusted ...

    Calculating personal income tax correctly involves understanding two important tax terms: adjusted gross income (AGI) and ... Read Full Answer >>
  5. What is the difference between a regressive tax versus a progressive tax?

    A progressive tax is one that increases along with an individual's ability to pay the tax, while a regressive tax doesn't ... Read Full Answer >>
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    Minimizing tax liability is one of the most important financial planning aspects for business owners and individuals each ... Read Full Answer >>

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