Solar tax credit

[Hollydapp]

If my tax liability is $5400 and I paid no federal tax during the year. My carry forward solar tax credit is $21,000, why is only $4400 being used to cover the tax liability? There is $4400 for children, so it is saying my refund is $3400. 

[AmyC · Accepted solution]

Let's do the math using IRS rules.

1. Tax liability $5,400 minus nonrefundable credits with no carryforward: 
   • part of the child tax credit  qualifies, $500 x 2 children = $1,000
2. $4,400 tax liability minus nonrefundable credits with carryforward:
   • your solar tax credit carryforward wipes out the tax liability.
3. Now, you have zero tax liability. You have a solar tax credit carryforward of $16,600 to carry into next year to use.

The refund comes from the additional child tax credit, the part that is refundable which is $1,700 times 2 children = $3,400 refund.