A reader asks: I am self employed, and last year my income was a lot smaller than past years. I paid estimated taxes during the year, however, TurboTax is telling me that I’m getting a refund greater than what I paid in taxes. Could that be right?
My answer: Yes, if you claimed any refundable credits, it is possible to have a tax refund that’s greater than the amount of taxes you paid.
Most credits credits are known as non-refundable credits, and they cannot reduce your tax liability below zero. Refundable credits on the other hand can reduce your tax liability below zero.
Some of the more common refundable credits include:
- The Earned Income Tax Credit
- The new Making Work Pay Credit
- The Additional Child Tax Credit (pdf)
- The Health Coverage Tax Credit
However, given that most credits are non-refundable, having a refund greater than your tax payments is certainly a good reason to want to check everything over just to be sure.
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Taxes Made Simple: Income Taxes Explained in 100 Pages or Less
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- The difference between deductions, exemptions, and credits,
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