Math is not my strong suit. Will someone please explain more clearly to me, how a person who pays in no taxes gets a refund?
Children...tax credit...
A deduction reduces your taxable income and, hence, your tax.
An ordinary tax credit reduces the amount of tax you owe, but not below zero. If you have a $1000 tax credit, and you owe $500, you pay nothing, but you don't get a refund.
A refundable tax credit subtracts from the tax you owe, period. If you have a $1000 refundable tax credit, and you owe $500, your tax is -$500 (i.e., the government pays you $500). And, of course, if you owe zip, then you get $1000.
>Will someone please explain more clearly to me, how a person who pays in no taxes gets a refund?
It’s how welfare works now. That’s the deal the GOP made with Bill Clinton.
I was once one of those. We had four kids under 18, earned a modest single income, owned our house and itemized taxes.
Then I became gainfully unemployed. Between the child tax credit, mortgage deductions, charitable deductions for donations made before I lost the job, we ended up getting back $2000 or so more than we paid in.
Of course, that all changed the next year.
A couple of my now grown kids will be the same. They live on their own but both have very modest incomes. The personal deduction allows them to pay little to no federal taxes.
“Refundable tax credit” semantically means “welfare”.
#14 That’s easy.
In 1996 Congress pledged welfare reform.
So they cut monthly welfare checks and repackaged it as a “earned income tax credit”.
If you earn less that a certain level, you get all your money back and if you have kids, you get your neighbors money too.