ExpertHard1 markMultiple Choice
CPA · Question 22 · Area IV: Individual Taxation
Which of the following is a 'refundable' tax credit?
Which of the following is a 'refundable' tax credit?
Answer options:
A.
Foreign Tax Credit
B.
Lifetime Learning Credit
C.
Earned Income Tax Credit (EITC)
D.
Child and Dependent Care Credit
How to approach this question
Memorize the short list of refundable credits: EITC, Child Tax Credit (partially), American Opportunity (partially), Premium Tax Credit.
Full Answer
C.Earned Income Tax Credit (EITC)✓ Correct
The Earned Income Tax Credit (EITC) is a refundable credit, meaning it can reduce tax liability below zero and result in a refund. The Foreign Tax Credit, Lifetime Learning Credit, and Child and Dependent Care Credit are nonrefundable (can only reduce tax to zero).
Common mistakes
Confusing Child Tax Credit (partially refundable) with Child and Dependent Care Credit (nonrefundable).
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