One of the most powerful tools in reducing your tax liability—and potentially increasing your refund—is the use of tax credits. While many credits simply reduce the amount of tax you owe (nonrefundable credits), some go a step further. These are known as refundable tax credits, and they can provide a refund even if you owe nothing in taxes. Understanding which credits are refundable and how to qualify for them can mean extra money in your pocket, especially if you’re a low- to moderate-income taxpayer.
Understanding Refundable vs. Nonrefundable Tax Credits
Tax credits come in two main types:
- Nonrefundable credits: Reduce your tax liability to zero but do not result in a refund beyond that.
- Refundable credits: Allow you to receive a refund even if your total tax liability is zero. These credits are especially beneficial for lower-income taxpayers.
Some credits also have partially refundable components—meaning a portion of the credit is refundable while the rest is nonrefundable.
Top Refundable and Partially Refundable Tax Credits
1. Earned Income Tax Credit (EITC)
The Earned Income Tax Credit is one of the most significant refundable credits available. It’s designed for low- to moderate-income working individuals and families, especially those with children.
Eligibility:
- Must have earned income from a job or self-employment
- Income limits apply (based on filing status and number of dependents)
- Must have a valid Social Security number
- Cannot have investment income over a certain threshold ($11,600 for 2025)
Refund potential: In 2025, the maximum EITC is approximately $7,830 for taxpayers with three or more qualifying children. Even if you owe zero in taxes, the full credit can be refunded to you.
2. Additional Child Tax Credit (ACTC)
The Child Tax Credit (CTC) offers up to $2,000 per qualifying child under age 17. However, only a portion of this may be refundable depending on your income. The refundable part is known as the Additional Child Tax Credit (ACTC).
Eligibility:
- You earned more than $2,500 in income
- You have a qualifying child who meets residency and relationship tests
- You are not claiming the full nonrefundable portion of the CTC
Refund potential: You may receive up to $1,600 per child (as of 2025) even if you owe nothing in tax.
3. American Opportunity Tax Credit (AOTC)
This education credit helps with college expenses for students pursuing a degree or other recognized education credential. Up to 40% of the AOTC is refundable.
Eligibility:
- Student must be enrolled at least half-time in a postsecondary institution
- Claimed in the first four years of higher education
- Income phaseouts begin at $80,000 (single) and $160,000 (married filing jointly)
- Cannot have a felony drug conviction
Refund potential: The AOTC provides a maximum credit of $2,500, and up to $1,000 is refundable.
4. Premium Tax Credit (PTC)
The Premium Tax Credit helps offset the cost of health insurance purchased through the Health Insurance Marketplace under the Affordable Care Act (ACA). Though it’s often used to reduce monthly premiums, you can also claim it as a refundable credit when you file your tax return.
Eligibility:
- Enrolled in a qualified health plan through the Marketplace
- Household income between 100% and 400% of the federal poverty line (FPL), though the American Rescue Plan temporarily expanded this
- Cannot be eligible for other minimum essential coverage
Refund potential: If your advance payments were too small or if you chose to wait to claim the credit, you can receive the full PTC as a refund on your tax return.
5. Recovery Rebate Credit (When Applicable)
While primarily linked to COVID-era stimulus payments, the Recovery Rebate Credit is an example of a fully refundable credit that could be claimed if you didn’t receive your full stimulus amount.
Eligibility (past years):
- Did not receive the correct Economic Impact Payment
- Had a baby or change in income after original payments were issued
Refund potential: In past years, taxpayers received $600 to $1,400 per eligible individual, even if they owed no tax.
Note: While this credit is not expected to be active in 2025, it is worth knowing how similar credits work in case of future emergency tax relief legislation.
6. Credit for Federal Tax on Fuels (Form 4136)
Although more niche, this refundable credit allows certain individuals and businesses to claim a refund of federal excise taxes paid on fuels used for specific purposes (e.g., farming, off-highway business use).
Eligibility:
- You used gasoline, diesel, or aviation fuel for qualified nontaxable purposes
- You maintain adequate records of use and purchases
Refund potential: Varies by fuel type and gallons used, but the refund is entirely refundable even with no tax owed.
How Refundable Credits Work in Practice
Suppose you have no tax liability—your taxable income is low enough that you owe zero. If you qualify for a refundable credit, you can still receive the credit as a refund from the IRS. For example:
- You owe $0 in tax
- You qualify for a $6,000 Earned Income Tax Credit
- Result: You receive a $6,000 refund even though you had no tax due
Filing Tips to Maximize Refundable Credits
To ensure you receive the refundable credits you qualify for:
- File a tax return even if you are not required to—some credits require filing to receive them
- Use IRS Free File or a trusted tax preparer to capture all eligible credits
- Double-check dependent eligibility rules and income thresholds
- Keep accurate records of education expenses, earnings, and Marketplace enrollment
Conclusion: Refundable Credits Can Put Cash in Your Pocket
If you’re looking to boost your tax refund, refundable tax credits are your most valuable asset. Credits like the Earned Income Tax Credit, Additional Child Tax Credit, and American Opportunity Credit can deliver refunds even if you owe zero tax. That means money back in your pocket simply for qualifying. Understanding which credits apply to your situation—and filing even if not required—can unlock thousands of dollars in federal assistance. Don’t leave money on the table: learn the rules, file correctly, and take full advantage of the refundable credits available to you.
