While getting a tax refund check is generally more fun than having to write a check to the Internal Revenue Service for taxes due when April 15 rolls around, in most cases you only get a refund if you overpaid your taxes during the year. However, it is possible to get back more than you paid in if you qualify for a refundable tax credit.
Exemptions and deductions reduce the amount of your taxable income. For example, until recently, if you were married and filed a joint return, you could claim a personal exemption for yourself, your spouse and your dependents. Each exemption reduced your taxable income by $4,050 for the 2017 tax year. This, however, changed for the 2018 - 2025 tax years with new tax reforms, and there are no personal exemptions available for these years. You can still claim the standard deduction, which reduces your taxable income by up to an additional $12,000 if you're a single filer. Tax credits are more valuable than exemptions and deductions because they reduce the amount of your taxes on a dollar-for-dollar basis. Most tax credits will only reduce your tax obligation to as little as $0. Some tax credits, called refundable credits, can reduce your tax obligation to $0 and pay any excess credit back to you in the form of a tax refund.
Earned Income Credit
One of the largest of the refundable tax credits is the earned income tax credit, or EITC. The EITC is based on a combination of your earned income and the number of your dependent children. The EITC is worth up to $6,431 for the 2018 tax year ($6,318 for 2017) if you have at least three qualifying children. You might be eligible for the refundable EITC, even if you don't have children, as long as your adjusted gross income for 2018 is less than $15,270 for single filers or $20,950 if you are married and file a joint return. For 2017 – if you have no qualifying children – your adjusted gross income must be less than $15,010 if you're single, or $20,600 if married and filing jointly.
Higher education is expensive. For 2017 and 2018, the American opportunity tax credit can help lighten the load a bit. This partially-refundable tax credit renamed and expanded the benefits offered by the Hope scholarship credit. The credit covers up to $2,500 per year of qualifying education expenses, including tuition, fees and course materials, for up to four years of college. The first 40 percent of the credit – up to $1,000 – is refundable, so you could get a refund even if you didn't owe any taxes.
Child Tax Credit
If you have a qualifying child who is younger than 17 as of the end of the tax year, you may qualify for the child tax credit. The maximum credit for the 2017 tax year was $1,000, but recent tax reforms have increased this amount to $2,000. While in 2017 the child tax credit was not refundable, for 2018, much of it is. In 2017 tax filings, if you are eligible for the credit, but receive less than the full amount, you might qualify for the additional child tax credit which is refundable. The additional child tax credit could give you a refund, even if you don't owe any taxes. For 2018 returns – to be filed in 2019 – even if you don't owe any taxes, $1,400 of the $2,500 child tax credit is refundable.
- IRS: Publication 972, Child Tax Credit
- Forbes: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More
- IRS: 2018 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates
- IRS: 2017 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates
- IRS: American Opportunity Tax Credit
- Investopedia: Child Tax Credit