Two credits that can pay you back

Published 2026-10-09 · Last reviewed 2026-10-09

A deduction lowers the income a tax is measured on. A credit is different: it comes straight off the tax itself, dollar for dollar, and a refundable credit goes one step further - if it is worth more than the tax you owe, the surplus is paid to you. That one word is why a family with a modest salary can finish the year with a check instead of a bill. This page prices two credits that work that way, on one household, from the engines the three calculators run.

A credit comes off the tax, not the income

Take a single parent with 2 qualifying children and $40,000 of wages. The standard deduction of $16,100 leaves $23,900 of taxable income, and the federal brackets charge $2,620 on it. Now the credits arrive. The child tax credit is worth $2,200 per child, so 2 children carry $4,400; the earned income credit adds $3,923. Neither number was taken off the $40,000 - both were taken off the $2,620, which is a much smaller thing to reduce.

The child tax credit has a non-refundable half and a refundable half

Of the $4,400 child tax credit, $1,000 can only take the tax down toward zero - here it absorbs $1,000 of the $2,620 bill and stops. The other $3,400 is capped at $1,700 per child and 15 percent of earned income above $2,500, and that slice can come back as the Additional Child Tax Credit even when the tax is already gone. Read the $3,400 as a ceiling, not a forecast: the return also compares it with the tax on the form.

The earned income credit climbs, then phases out

The earned income credit is printed as a table, not a formula: for each number of children the IRS prints the income where the credit tops out, the maximum, and the window where it falls to zero. For a single filer with two children the maximum is $7,316, reached at $18,290 of earnings; above $23,890 of income the credit starts to shrink, and it is gone by $58,629. At $40,000 this household is already inside that phase-out, which is why the $3,923 it receives is smaller than the $7,316 the column allows.

What refundable actually means

After the non-refundable half of the child tax credit, $1,620 of tax is left. The refundable half of the child tax credit is $3,400, and the earned income credit is $3,923; together they are $7,323, more than the tax that remains. The difference, $5,703, is not carried forward and it is not lost - a refundable credit is paid out. That is the whole distinction: a non-refundable credit can only pull a bill down to zero, while a refundable one can push past zero and hand back the excess.

Where these numbers come from

• IRS child tax credit page and Schedule 8812. The $2,200 per child, the $1,700 refundable slice, the $2,500 earned income floor and the $200,000 phase-out threshold are the 2026 figures the tool uses, and every release checks them against the official text we keep.
• Internal Revenue Bulletin 2025-45, Revenue Procedure 2025-32. The four columns of the earned income credit - each child count's maximum, earned income amount, threshold and completed phase-out - come from that table, and the two slopes follow from it rather than being typed in.
• The tax line uses the same income-tax rules as the tax-refund calculator. $2,620 is that tax on the same taxable income, so the credit arithmetic and the return cannot disagree.

What this guide does not cover

It prices one household with two children and one salary, and it stops at the two largest family credits. It does not model the earned income credit's investment-income disqualification, the additional child tax credit worksheet that can trim the refundable slice further, the child and dependent care credit, the saver's credit, or a state credit layered on top. It also ignores withholding: a real refund also carries the tax already taken out of each paycheck, so the figure here is the credit's contribution, not your April check. Filing status changes both the thresholds and the phase-out window, and only the single filer is shown.

Calculate what your own household's credits come back as in the Child Tax Credit Calculator, size the earned income credit in the EITC Calculator, or put both against a whole year's withholding in the Tax Refund Calculator.

Estimates only - not financial, tax or legal advice, and it does not predict how the IRS will treat a particular return. Read the full disclaimer.