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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: themagicman on January 13, 2018, 05:53:25 AM

Title: Refundable and nonrefundable tax credits
Post by: themagicman on January 13, 2018, 05:53:25 AM

I am looking at my 2018 tax projections and had a question on tax credits. With my current income and deductions, the federal government will owe me about $350 in taxes in 2018. My question is how do you determine the credit that pushes you to not have any tax liability? One of the credits I will use is refundable and one is non refundable so just wanted to see if my tax would be zero or if they will owe me $350. For example which way does this work?

Tax liability                                                                    $2,050           
New child tax credit (Lets assume all refundable)            -$2,000
Savers tax credit (Non-refundable)                                 -$400

Total (Since savers tax pushes me negative it stays at zero)    $0

OR

Tax liability                                                                    $2,050           
Savers tax credit (Non-refundable)                                 -$400
New child tax credit (Lets assume all refundable)            -$2,000

Total (Since child tax credit is fundable)                          -$350

Title: Re: Refundable and nonrefundable tax credits
Post by: Peachtea on January 13, 2018, 08:45:21 AM

It looks like you apply non-refundable first and then refundable. (So in your example you would have -$350.) Based on these two articles it seems that programs like TurboTax will automatically calculate it for you in that order to get the refund. And if you’are doing your taxes yourself by hand (filling out the forms to send to IRS) then you need to make sure you do the calculations in the right order to get the refund.

https://turbotax.intuit.com/tax-tips/tax-deductions-and-credits/what-is-the-difference-between-a-refundable-and-a-nonrefundable-credit/L5ZBHTL5Y

https://www.investopedia.com/terms/n/nonrefundabletaxcredit.asp

Title: Re: Refundable and nonrefundable tax credits
Post by: MDM on January 13, 2018, 01:58:23 PM

You do get a $2K CTC if you owe at least that much in tax.  But the refundable amount is only $1400 and (I believe) you have to subtract the non-refundable CTC amount you use from $1400 to see how much you actually get.  Don't know for sure if the calculations below are correct, but there are at least plausible.  See the case study spreadsheet (http://forum.mrmoneymustache.com/forum-information-faqs/case-study-spreadsheet-updates/) if you would like to enter your specific numbers.

Paycheck frequency:	Annual	Annual
Paycheck Items	Earner #1	Earner #2	Annual
Gross Salary/Wages	$44,258	$0	$44,258
W-2 Box 1	$44,258	$0	$44,258
1040 AGI			$44,258
Other Specific Investment Types	Annual	Annual	Annual
Roth IRA	$2,000	$2,000	$4,000
Payroll Taxes	Annual	Annual	Annual
Social Security	$2,744	$0	$2,744
Medicare	$642	$0	$642
Income Taxes
Federal tax	-$295	2018, MFJ, std., 1 dep	-$295
Total income taxes	$3,091		$3,091

Filing Status	2	1=S, 2=MFJ, 3=HOH
# Dependents	1
# Children <17	1
# Children <13	1
# Children for EIC	1
	Adult #1	Adult #2
Age	35	35
Full-time student?	0	0
AGI	$44,258
Std. Deduct.	$24,000
Act. Deduct.	$24,000
Exemption	$0
Taxable	$20,258
1040 Tax	$2,050
Saver's credit	$400
Non-refund. CTC	$1,650
Tax after n-r credit	$0
EIC	$295
Net Tax	-$295
Version	V10.07