According to a recent study by the Joint Committee on Taxation (a nonpartisan committee of the United States Congress), more than 50% of US households had zero income tax liability which means they paid no federal income tax in 2009. Almost 30% of US households got their income taxes back plus additional funds thanks to refundable tax credits.
What are refundable tax credits?
In general, a tax credit is an amount that decreases the tax that is owed. Most tax credits are applied to the tax until zero tax liability is achieved. However, a refundable tax credit enables the tax liability to cross over zero resulting in a refund check from the government. Some examples of refundable tax credits from 2009 include:
- The Earned Income Tax Credit
- The First Time Home Buyer’s Tax Credit
- The Making Work Pay Tax Credit