What is a refundable credit?

A refundable credit is a credit that will reduce your tax and may add to your refund even if you don't have any tax liability at all. If your credit is more than the amount of your tax liability, you can get the excess amount in your refund. The Earned Income Credit is one of the most common refundable credits.

For example: If your tax calculation comes out to $1,500 and you have a refundable credit of $2,000, your tax liability would be reduced to zero and you would receive the extra $500 as a refund.