I understand that a nonrefundable tax credit can't exceed the total tax liability for the year, and that excess won't be refunded, but what about tax liabilities already paid via W2 payroll withholding? Will the payroll tax withholding be refunded in the amount of the nonrefundable tax credit? This must be a very common scenario but articles don't even talk about this.
For example, I should be able to reduce my payroll tax withholding to end up owing the IRS on the tax return and then use the tax credit to offset what is owed The logic follows that payroll tax withheld should be refundable - it shouldn't be forfeited just because it was prepaid (same idea as quarterly estimated tax payments for a business). At least in common sense theory.
Interesting that no one seems to explain this very common scenario.
