Refundable and Nonrefundable Tax Credit

[ANGLER123]

How are refundable and nonrefundable tax credits applied to your tax liability if together they exceed your tax liability. 

For example, let's say my tax liability is $5000 and I have a $6000 refundable credit and $3000 nonrefundable credit.  Is the nonrefundable tax credit applied first, lowering tax liability to $2000, and then I would receive a refund of $4000?  Or, is the refundable credit applied first, and then I wouldn't receive the non refundable credit?

Thanks

[pk]

@ANGLER123 , non-Refundable credits  can only reduce your tax liability and on the form 1040 they appear  before determining your final tax liability.  In contrast  Refundable credits are similar to estimated/ withholding payments-- On form 1040 these credits appear  after withholdings, estimated payments etc.

This in your particular case ( modified )-->  

Tax computed --$5000;  Taxes withheld --$1000;  Non-Refundable Credit --$6000; Refundable Credit --$2000.

Taxes --- $5000

Less Non-Refundable Credit --- $6000

1.  Final Tax Liability -- 0 ( 5000 Less 6000 but not less than zero )

2.  Withholdings : --- $1000

3. Refundable Credits --- $2000

Final Refund --- $3000.

Does this clear up your query ?

[VolvoGirl]

@pk  I think you reversed his refundable and non refundable credits (and used the wrong amounts too).   His example is right.

[VolvoGirl]

Will this help?  Here's the 1040 page 2.   Print out a blank 1040 and follow the math  You also need schedule 3

1040  https://www.irs.gov/pub/irs-pdf/f1040.pdf 

Sch 3  https://www.irs.gov/pub/irs-pdf/f1040s3.pdf 

[Critter-3]

Also understand that the CTC has a non refundable portion and a refundable portion in the form of the ACTC so it is not a straight forward calculation in some cases.  Also some non refundable credits can be carried forward so that also has to be taken into consideration.   And then for tax year 2021 some  usually non refundable credits will be refundable so that will put a monkey wrench into the works next year. 

[pk]

@VolvoGirl you are right -- i used different figures to show  how Non-Refundable credit only quenches the tax liability i.e. no negative allowed  while refundables add to the refund.  Sorry for the confusion