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What is the difference between a refundable and a nonrefundable credit?

A refundable credit is one that allows you to get money back in the form of a refund if the size of the credit is greater than your tax liability. Refundable tax credits include the Earned Income Credit, Adoption Credit, Additional Child Tax Credit, and American Opportunity Credit (which is only partly refundable).

A nonrefundable credit is one that can only reduce your tax liability and cannot result in a refund. Examples of nonrefundable credits include the Child and Dependent Care Credit, Education Credits, Credit for the Elderly or Disabled, Child Tax Credit, Foreign Income Tax Credit, and Residential Energy Credits.