What does a refundable tax credit allow a taxpayer to do?

A refundable tax credit allows a taxpayer to receive money through a refund, even if they have no tax liability. This means that if the amount of the refundable credit exceeds the taxpayer's total tax owed, the excess amount is paid to the taxpayer as a refund. This feature distinguishes refundable tax credits from non-refundable tax credits, which can only reduce the tax liability to zero but do not result in a cash refund beyond that point.

In practical terms, a taxpayer with a refundable credit can benefit financially even if they have not paid enough in taxes throughout the year to offset the total credit amount, which is particularly beneficial for low- and moderate-income individuals and families.