What’s the reason why some tax credits are non-refundable and other tax credits are refundable?
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Each tax credit in the US’s baroque tax system is added via a new law, and is negotiated independently from all the others. So whether any given one is refundable depends on the specific horse trading at the time it’s enacted.
Most tax credits are nonrefundable, meaning they can reduce the tax you owe, but if it’s more than you owe, any excess just disappears. It’s easier to get approved, because the cost is capped that way.
This type is often used to encourage some behavior or act, like installing solar panels or buying an electric car.
A few tax credits, mostly directed at low income tax payers, are set up as refundable to benefit the folks who need it most.
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