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Question regarding lifetime learning credit, nonrefundable credit

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  • Question regarding lifetime learning credit, nonrefundable credit

    So I somewhat understand what a nonrefundable tax credit such as lifetime learning credit means but have a question on application.

    I understand you can only get the tax applied to your tax liability so if you owe 1900 it will only give you 1900 in credit etc. My question is, is that the liability after withholding, as in essentially your tax bill after the return or is it basically against whatever taxes you owe? Might sound confusing so I'll attach some numbers

    Lets say 2500 withheld throughout year for fed taxes and have sufficient educational expenses to get 2000 in credit. After using deductions and etc due to only working half the year as an intern I predict my total federal tax owed will be roughly 1000, resulting in a net return of 1500 before ant credit. My question is can the credit then apply to that 1000 that is owed, or would it only be applied in the event that my withholdings aren't sufficient to cover my tax bill at end? I've read conflicting reports.


  • #2
    Your tax liability is how much tax you owe, period.  The idea of refundable vs nonrefundable, is that refundable credits will be paid back to you even if you pay no tax.  Nonrefundable just brings you down to zero.

    In your scenario, if you owe just $1,000 in tax, but have paid in $2,500 (withholding) and also have a $2,000 nonrefundable credit, the $2k nonrefundable credit should bring your $1,000 tax liability down to zero, and you will get back the $2,500 you paid in.