Unlike leopard spots and tiger stripes, tax credits do change. And, in the federal tax equivalent of spots and stripes, some even change from non-refundable to refundable. For instance, the Hope scholarship credit was modified in 2009 and became partially refundable as the American opportunity credit. In 2010, the adoption tax credit became refundable.

What's the difference between nonrefundable and refundable tax credits? One way to make sense of the distinction is to look at last year's Form 1040. Nonrefundable credits, which reduce your tax to zero but no lower, are reported on page 2, directly beneath your tax liability.

You'll find refundable credits further down page 2, in the "Payments" section. That's because — like income tax withholding or estimated payments — refundable credits can reduce your tax liability to zero, and the difference is refunded to you.

In contrast to actual tax payments, the potential benefit of refundable tax credits can be temporary. As an example, two refundable credits on last year's federal tax form, the making work pay credit and the first-time homebuyer credit, expired in 2010.

Contact us if you have questions. No matter how things change, we're here to make sure you get credit where it's due.


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