Refundable vs. Nonrefundable Credit

Full explanation

A nonrefundable credit reduces your tax liability but cannot go below zero — if your tax is $500 and you have a $1,000 nonrefundable credit, you get $500 of benefit and lose the rest. Examples: Lifetime Learning Credit, Child and Dependent Care Credit. A refundable credit can reduce your tax below zero — if your tax is $500 and you have a $1,000 refundable credit, you get a $500 refund. Examples: Earned Income Tax Credit, a portion of the Child Tax Credit (Additional Child Tax Credit). Refundable credits are more valuable for lower-income taxpayers.

Source: IRS Publication 17 — Credits