: Can I increase value of non-refundable credit by paying less taxes? I'm in the United States. The Child Tax Credit is a non-refundable credit of 00. Scenario 1 : I do my taxes at the end of the year and before applying

A tax refund (or additional amount owed) is the difference between the tax you owe and what was already paid (via withholding or estimated quarterly payments). A tax credit reduces the amount of tax you owe regardless of how much was withheld. Altering withholding would not change the benefit from the tax credit.

Say you make ,000, are single and take the standard deduction. Based on your income, filing status, and deductions, you owe ,224 in federal income tax. If you have a ,000 tax credit, that means you owe ,224. That number is unaffected by withholding. So if you had ,000 withheld you'd get a refund of 6, if you had ,000 withheld you'd owe an additional 4, either way you benefit from the tax credit.

Some people like getting a big refund, but a big refund just means you had access to less of your money throughout the year (unless refundable credits are involved). Some people like owing a bit at tax-time, since that means they had access to more of their money throughout the year. Our taxes are 'pay as you earn' so there are penalties if you didn't pay enough throughout the year.

The type of credit is immaterial to your question, they all offset your tax liability and how much you had withheld doesn't impact their benefit. The difference between a non-refundable tax credit and refundable is that non-refundable credits can only bring your tax liability to [CO], meaning the maximum refund you could get is the total of what you had withheld (or paid in quarterly estimates). Refundable credits can basically drive your tax liability into the negative, thus potentially giving you a refund greater than the amount of federal income tax that was withheld. So, you could waste some of a non-refundable credit by not having enough tax liability to benefit from it entirely.

With refundable credits, some people do try to game the system to maximize benefit by keeping their income below a threshold, it's not a prudent strategy in general to deliberately earn less in an effort to save on taxes, it usually stems from a misunderstanding of how our tax system works.

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A non-refundable tax credit applies to the total taxes you own for the year. It does not matter how much you already paid, and how much you still have to pay (or to get back). If your total annual tax is lower than the credit, you‘ll miss out on the rest.

A refundable tax credit applies independently of your personal taxes; you will get that money either way, even if your personal taxes are zero. The idea behind that is that you already paid for something (like a new high-efficiency AC), and you get some of that money back.

Tip: If you are really in the situation that you cannot take full advantage of a non-refundable tax credit (which is uncommon), you can consider increasing your taxes for the year (reducing future taxes), and getting more from the credit.
Example: you convert some money from your 401k or IRA into your 401k Roth or IRA Roth (which is a taxable event), and this gets offset by the extra credit you still had. That way, you now have tax-free Roth money instead of to-be-taxed-later non-Roth.
Another option is to do a ‘reverse wash sale’, where you sell a well-going investment, pay taxes on the gains, and immediately buy it back, now having a higher basis; again not really paying those taxes, but using the remaining credit for it.

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Your eligibility for tax credit has nothing to do with how much you have prepaid or withheld. There are two completely separate ledgers or "tabs" rolling here.

Ledger #1 is your prepayment ledger: the money you have prepaid toward your taxes, in the form of withholding or quarterly payments.

The total of these is the prepayments you have deposited with the government in anticipation of your tax bill.

This is your money, simply on deposit/hold. It's a "tab", but you're the bartender - the government owes you this money unless it's used to pay your taxes.

Ledger #2 is your Taxes Actually Owed register, which is the number that comes out of the bottom of your Form 1040 tax form when you actually fill it out. You can't even compute this ledger until the end of the year.

Tax credits can actually make this number go negative. Your total tax bill becomes a negative number, and even if ledger #1 was [CO] because you withheld or prepaid nothing, you still get a refund check. So cool!

However the rules do not allow certain credits to make your tax bill go less than zero. (spoilsports!) These are non-refundable tax credits. Your 00 refund is one of those.

Non-refundable tax credits have nothing to do with ledger #1. They simply keep ledger #2 from going negative for that credit.

Now. At the end of the year, these two ledgers are pushed together.

Ledger #2 is the tax you owe (or the refundable credit you are owed). Ledger #1 is subtracted from that (i.e. used to pay your taxes). If that number is positive (you still owe more tax) you must pay that by April 15. If the number is negative, (you are owed a refund) they send you one.

Let's try some examples.

Jim has normal, typical taxes. He withholds 0/week for his withholding. His taxes are 00 but he also gets a 00 non-refundable tax credit. This goes like this.

00 Tax owed (part of ledger #2)
- 00 Non-refundable credits (part of Ledger #2)
========
6000 Final total, ledger #2

- 00 Withholdings and prepayments in ledger #1
========
0 taxes still owed

Sue is self-employed and makes quarterly estimated tax payments (into ledger #1). She pays 0 every quarter. When she does her taxes, she owes 0 in tax. She then has a 00 non-refundable tax credit. Here's what happens.

0 Tax owed (part of ledger #2)
- 00 Non-refundable credits (part of ledger #2)
========
0 Final total (final total of ledger #2)
- 0 Withholdings and prepayments (final total of ledger #1)
========
-0 Taxes still owed (in other words, 0 refund)

Same exact facts, but but it's a different credit that is refundable. You can see how this goes different.

0 Tax owed (part of ledger #2)
- 00 Refundable credits (part of ledger #2)
=======
-300 Final total (final total of ledger #2)
- 0 Withholdings and prepayments (final total of ledger #1)
========
-0 Taxes still owed (in other words, 0 refund)

Your case might be more like this.

00 Tax owed (part of ledger #2)
- 00 Refundable credits (part of ledger #2)
=======
00 Final total (FINAL total of ledger #2)
- 00 Withholdings and prepayments (final total of ledger #1)
========
-00 Taxes still owed (in other words, 00 refund)

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