Combining refundable and nonrefundable tax credits. How does it work?

[TomTX]

For math simplicity,  lets say I have a federal income tax liability of $1000 before credits. I am eligible for $1000 in refundable credits (additional child credit) and $1000 in non refundable credits (retirement savings tax credit)

In what order are the credits applied?

Scenario one: nonrefundable first, wipes out liability,  then refundable resulting in a $1000 check from the feds.

Scenario two: refundable first, wipes out liability,  then nonrefundable is wasted (or carried forward? ) resulting in no check, but zero tax.

[teen persuasion]

It depends on the credits.  For the ones you mentioned, the retirement savers credit comes first (line 50), so is used first.  There would be no tax left for the child tax credit, so that would be zero, but you should be eligible for the additional children tax credit, which is the refundable version.  I have no idea why they have two versions of that credit, but you should get the refundable credit in the end.

Now, for other combinations, it could work differently.  Personally, the retirement savers credit is worthless to us, we owe no tax.  If we earned enough to owe tax to use the credit, we'd no longer be eligible.

[TomTX]

The refundable additional child tax credit is a newish additio to the tax code, and was notionally temporary,  though it was extended already at least once.

[seattlecyclone]

Scenario 1 is generally correct. You can look at the tax form to verify this. The "Tax and Credits" section at the top of the back of Form 1040 has all of the nonrefundable credits. Any of these credits can bring your tax liability down to zero. Then the refundable credits are applied later in the "Payments" section near the bottom of the form.

[TomTX]

Thanks much.