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Tax credits may be characterized as refundable or non-refundable. Refundable tax credits can reduce the tax owed below zero, and result in a net payment to the taxpayer beyond their own payments into the tax system. An example of a refundable tax credit is the additional child tax credit.

A non-refundable tax credit cannot reduce the tax owed below zero, and hence cannot cause a taxpayer to receive a refund in excess of their payments into the tax system. Some example of non-refundable tax credits tax credits are the Hope and Lifetime Learning educational tax credits.