“Refundable tax credit” means a credit that is included in the payments section of the 1040 form. For example, if you owe $100 in taxes but have a $200 refundable credit, your net taxes are -$100. “Refundable” means they can send you more money than you sent them.

This can be serious money. I have done tax returns for people who had hundreds of dollars withheld from their paychecks over the year but who got thousands of dollars in refunds. (I’m an IRS VITA volunteer.)

The main refundable tax credit is the earned income credit (EIC). This program is brilliant as it encourages to get off welfare by literally paying them to work. I have seen people cry when they realize the huge refund they will be getting (often many months pay). Doing taxes is hard work (especially the training) but things like that make it all worthwhile.

But you must have a Social Security Number to qualify for the EIC. This excludes a lot more than just illegal aliens.

irs.gov

Oh, and one more thing. The IRS’s most nasty sanctions are for people who falsely file for the EIC. It’s an absolute gold mine and people are try hard to get this money. Even a simple accounting error gets you locked out for 2 years and if they decide it was fraudulent, it’s 10 years.

A LOT of people who don’t make enough money to be required to file a tax return make a mistake by not filing. Even though they didn’t pay any taxes, they can still get a good sized refund. VITA volunteers are in every state doing tax returns for free — mostly at libraries.