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Refundable and Nonrefundable Tax Credits: What's the Difference

January 30, 2020

The following is important information from the Vermont Department of Taxes regarding refundable and nonrefundable tax credits.

A refundable tax credit can reduce your tax liability to below zero. If the amount of a refundable tax credit is more than the amount of taxes due, the difference will be given back to you as a tax refund. If you are already owed a tax refund, the refundable credit will be added to increase the amount of your refund.

Unlike a refundable tax credit, a nonrefundable credit cannot reduce a tax balance beyond zero. With the exception of the federal Adoption Credit, any unused portion of a nonrefundable tax credit will expire in the year the credit is claimed and cannot be carried over.

Find definitions for these and other tax terms in the IRS and Vermont tax glossaries.