A refundable tax credit can reduce your tax liability below zero, which means you can receive a tax refund from this form of credit. Here are some examples:
- Earned Income Tax Credit: This credit is designed for lower-income individuals and families who are working. The amount of credit you receive depends on your income level and number of dependents. For 2015, the maximum credit for applicants with no qualifying children is $503; this rises to $3,359 if you have one qualifying child and increases again if you have two or three qualifying children.
- Health Coverage Tax Credit: The HCTC pays up to 72.5 percent of qualified health insurance premiums and can be claimed annually on your tax return or monthly if you enroll in the HCTC program.
- American Opportunity Credit: You could claim this credit if you are earning your undergraduate degree. It is limited to expenses incurred during the first four years of college and is worth a total of $2,500, $1,000 of which is refundable. This means you could get $1,000 back as a refund even if you don’t owe any taxes. The maximum income is $80,000 for single filers and $160,000 for joint filers.