i paid more taxes than i owe so i am getting a refund - is this bad idea because now i can take advantage of the nonrefundable tax credits?

[az148]

I paid more taxes than i owe so i am getting a refund - is this a bad idea because now I can take advantage of the nonrefundable tax credits?

[JohnB5677]

No, a nonrefundable tax credit means you can get credit for the taxes that you owe, but you cannot reduce your taxes past zero.

• If you had $1,000 withheld from your paycheck.
• You owe $600 in federal income tax.
• You will get a $400 refund simply because you had more withheld than you owe.
• If you have a $700 nonrefundable credit it can reduce your taxes by the $600 that you owe in taxes, but no more.
• In this case you would not be able to take advantage of the last $100.
• The initial refund makes no difference.

You can preview your tax return by going to: Make note of line 24 - Total Tax

1. On the menu bar on the left that shows.
   1. My Info
   2. Federal
   3. State
   4. Review
   5. File
2. Select Tax Tools
3. On the drop-down select Tools
4. On the popup menu
5. Select View Tax Summary
6. On the left sidebar
7. Select Preview my 1040.
8. Schedules 1,2&3 are included if you scroll down past your 1040.
9. To return to the entry screens press Back on the sidebar.

Some key numbers on your 1040 tax return are:

Line 15 - Taxable Income

Line 24 - Total Tax.

Line 25 - Withholdings.

Line 33 - Payments including Credits.

Line 34 - Overpayments.

Line 37 - Tax owed.

If I've misunderstood your question, and this does not completely answer it, please contact us again and provide some additional details.

[Seaduck79]

Interesting.  My situation is that my tax bill was (let's say) $15k.  I paid in $10k, leaving a liability of $5k.

I have a solar tax credit, of which I can apply $5k, bring my net tax bill to zero, correct?

If that is correct, why is TT Online telling me that I am getting a large (like $10k) refund?

[Vanessa A]

We would need more information such as how much was your carry forward and the numbers that you have on lines 16 through 34. 

It could be that you have other credits that are resulting in a refund.  It could be that you have a typo or entered an amount withheld and something in estimated tax payments. 

Your tax liability is the amount on line 18.  It is the total amount of taxes you are responsible for without consideration of what you have already paid in. What you pay in, is just a payment towards your liability. So, if you have a liability of $10,000 and you pay in $5,000, but you have total nonrefundable credits of $10,000, you would get your $5,000 back that you paid in because the credits would bring your liability down to $0. 

[Seaduck79]

No other credits involved.  Here is the summary from TT Online after all data is entered:

Shouldn't the last cell be zero?

Your Tax Breakdown2022

Total Income	$159,673
Deductions	- $30,915
Taxable Income	$128,758
Blended Tax Rate	x 18.1%
Tax LiabilityThis is how much you were supposed to pay in taxes.	$23,308

Your Tax Payments and Credits2022

Taxes Paid	$14,109
Credits	+ $19,561
Total Taxes Paid	$33,670
Refund (or Tax Due)This is calculated by taking your total taxes paid and subtracting your tax liability.	$10,362

[DaveF1006]

No. Your total tax liability was $23,308. The total amount of your credits and tax withholdings is $33,670. The last cell as you refer to it is the refund amount of  $10,362. ($33,670-23,308). 

Everything listed there is reported correctly.

@Seaduck79 

[Seaduck79]

I thought that it would carry that $10k forward to succeeding years, though.  It is carrying forward about $2400, so why not that plus the $10k as well?  I thought that's how tax credits worked.

I don't understand why it applied $19k in credit instead of just the $9k it needed to zero the tax bill.

There is literally a worksheet that goes with form 5695 that clearly leads to such an outcome, but I didn't see that worksheet being a factor in your software or computations.

[Vanessa A]

Tax credits are carry forward and applied as they can be used, until they are gone.   You apply them to the next tax year and each additional tax year to be used up as much as possible each year until gone.   You can't say I only want to use $5k this year and 10K next year. A carryforward credit must be used up as early as it can be.  You can't save it.

Even if you would try to save it, then want to use it next year, you would have to go back and apply it to this year by amending your return before you could take what is left next year. 

 The credits do not take into consideration what you paid in.  The only thing that affects them is your tax liability.   

[az148]

For example,

• I had $4000 withheld from paycheck.
• I owe $3000 in federal tax.
• I qualify for $1000 nonrefundable tax credit. 

Would I get $2000 refund?

If I only get $1000 in refund, I'd rather have $2000 withheld from paycheck this way I can take advantage of the nonrefundable tax credit to reduce my tax liability and get a greater refund. but since I have more withheld than what I owe, the nonrefundable tax credit is not doing me any favor.

[az148]

So in your example, if I had the $700 nonrefundable credit - it reduced my $600 tax liability to zero, what would my refund be? still $400?

[CatinaT1 · Accepted solution]

From your example above: 

For example,

• I had $4000 withheld from paycheck.
• I owe $3000 in federal tax.
• I qualify for $1000 nonrefundable tax credit.

$3,000 in Federal Tax

$1,000 non-refundable Credit

$2,000 in Federal Tax

$4,000 withheld

$2,000 refund

Don't apply any withholdings until after all credits.