DEFINITION of 'Refundable Credit'

A tax credit that is not limited by the amount of an individual's tax liability. Typically a tax credit only reduces an individual's tax liability to zero. Refundable credits go beyond this and so really can be considered the same as a payment.

BREAKING DOWN 'Refundable Credit'

In other words, you'll still get the credit even if you don't owe any tax. The earned income credit is a good example of a refundable credit in the United States.

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