What is the difference between refundable and nonrefundable credits? Q.What is the difference between refundable and nonrefundable tax credits? A.Taxpayers subtract both refundable and nonrefundable credits from the taxes they owe. If a refundable credit exceeds the amount of taxes owed, the difference is paid as a refund. If a nonrefundable credit exceeds the amount of taxes owed, the excess is lost. Read more about What is the difference between refundable and nonrefundable credits?
How do phase outs of tax benefits affect taxpayers? Q.How do phaseouts of tax provisions affect taxpayers? A.Many preferences in the tax code phase out for high-income taxpayers—their value falls as income rises. Phaseouts narrow the focus of tax benefits to low- and middle-income households while limiting revenue costs, but raise marginal tax rates for affected taxpayers. Read more about How do phase outs of tax benefits affect taxpayers?
What's the difference between tax deductions and tax credits? Q.What’s the difference between a tax deduction and a tax credit? A.Deductions reduce taxable income and their value thus depends on the taxpayer’s marginal tax rate, which rises with income. Credits reduce taxes directly and do not depend on tax rates. However, the value of credits may depend on the taxpayer’s basic tax liability. Nonrefundable credits can reduce tax to zero but any credit beyond that is lost. Read more about What's the difference between tax deductions and tax credits?
