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Refundable Tax Credit
A refundable tax credit allows you to get back more than you owe. For example, lets say the amount you had withheld from your paycheck was exactly what you owed before the credit. In other words, if you didn't get the credit, you would get neither a refund or have to pay when you file your return. Here are some numbers below. I also assumed married filing jointly.
Taxable Income (Line 42 on 1040) 80,000
Tax Liability Line 43 (1040 tax charts) 13,481
Paycheck withholdings (Line 63) 13,481
Normal Refund without credit 0
Refundable Credit 15,000
Refund with credit 15,000
In this scenario you actually get more back than you owe or have paid in. Normally, the extra credit (1,519) would have to be carried over and applied on the next tax return.
Currently, the only refundable tax credit that I know of is the earned income credit. Your income has to be very low to qualify for this. Refundable credits are usually geared toward people with very low incomes.
I hope my example makes sense. Sometimes people get confused between what they had withheld, what their tax liability is, and what they get refunded.
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