Understanding the Different Types of Tax Credits

Tax credits are one of the most powerful ways to reduce your tax liability—and in some cases, even increase your tax refund. Unlike tax deductions, which reduce your taxable income, tax credits lower the actual amount of tax you owe, dollar for dollar.

At Walker Tax Relief, we help individuals and small business owners across Northville, Michigan, and beyond understand and apply the right tax credits to maximize savings. Here’s a breakdown of the main types of tax credits available in 2025.

1. Nonrefundable Tax Credits
Nonrefundable tax credits can reduce your tax bill to zero—but not below zero. If your credit exceeds your tax liability, the leftover amount is not refunded.

Common examples include:

Child Tax Credit (nonrefundable portion)
Lifetime Learning Credit
Saver’s Credit
Foreign Tax Credit

These credits can still lead to significant savings if you owe taxes, so don’t overlook them.

2. Partially Refundable Tax Credits
These credits reduce your tax owed, and if there’s any left over, a portion may be refunded to you. They offer the best of both worlds.

Examples include:

American Opportunity Tax Credit (AOTC) – up to $1,000 may be refunded, even if you owe nothing.

Earned Income Tax Credit (EITC) – depends on your income and number of dependents.

These credits are especially valuable for students, working families, and low-to-moderate income earners.

3. Fully Refundable Tax Credits
Fully refundable credits go beyond zero—meaning you’ll receive the full value of the credit as a refund, even if you don’t owe any taxes.

Examples include:

Additional Child Tax Credit
Premium Tax Credit (healthcare marketplace)
Earned Income Tax Credit (in full form)

If you qualify, these credits can put money back in your pocket, making them a lifeline for many taxpayers.

Why Tax Credits Matter
Understanding tax credits can dramatically improve your refund or reduce your tax bill. The key is knowing:

Which credits you’re eligible for

Whether they’re refundable, partially refundable, or nonrefundable

How to document and claim them properly

Jennifer Walker, an Enrolled Agent and tax expert at Walker Tax Relief, helps clients stay ahead of changing laws and ensures they don’t miss out on valuable opportunities.

Final Thought
Tax credits can make a big difference—especially when your return is prepared by a professional who understands the full tax picture. Whether you’re filing for the first time or managing a complex return, Walker Tax Relief is here to help.

Located in Northville, MI | Serving clients nationwide
Need help maximizing your tax credits? Contact Jennifer Walker today.