Non Refundable Tax Credit Question

amother

Thu, Aug 26 2021, 2:35 pm

I am eligible for a non refundable tax credit.
It is a significant amount of money.
Here's the thing - last year, I got a refund. Not much, probably mostly from the child tax credit.

1) does that mean I didn't owe anything at the end of the year and therefore wouldn't be eligible for non refundable tax credits because I didn't actually need the credit? I pay my taxes properly, so I don't owe anything I think.

2) if so, how can I benefit from the tax credit?
Is there a way to (legally, of course) pay less taxes so I owe at the end of the year and then am eligible for the tax credit?
If not, how can I calculate how much income I need to earn to be eligible for the credit?

amother

Papayawhip

Thu, Aug 26 2021, 2:53 pm

A non refundable tax credit only means that if you were required to pay less money in taxes than the credit you would not get the extra money back. If the tax were 2000$ and you were required to pay 1500$ you would not get the 500$ back. However If you were required to pay 3500$ and paid all of it you would get the 2000$ tax credit back.

amother

Thu, Aug 26 2021, 4:58 pm

amother [ Papayawhip ] wrote:

Ok.
Thank you for your explanation!

So I think I paid 6k in federal taxes last year,
And the tax credit I want this year Is 6500.
But there are other credits that I'm already taking advantage of probably, so how do I know how much taxes I need to pay to take full advantage of all the tax credits I am eligible for? (Let's say I try to get a second job temporarily..)
I think I got around a 5k refund.

How would a non refundable tax credit look if I'm eligible for 5k without this credit, would I get 11k back?

Eta: let's say I'm eligible for the childcare tax credit which is refundable so that's 3k, and this nonrefundable tax credit for 6.5k, how does that calculated? Would it still get 9.5k back, ir the 3k counts towards my total?

amother

Outerspace

Mon, Aug 30 2021, 3:01 pm

amother [ OP ] wrote:

You need to look at tax liability, not tax due after considering all payments (withholdings and credits).

So, in general, if your tax is $5,000 and you had $6,000 withheld and paid in from your job, and you're due a $1,000 refund (before we consider other credits), the nonrefundable credit looks at your $5,000 tax amount, not your $1,000 refund.

I don't understand your question about trying to get a second job in order to pay more taxes in order to increase your ability to get more credits...? I'm sure I'm misunderstanding. You can post more details and I can try to answer (CPA).

amother

Mon, Aug 30 2021, 3:15 pm

amother [ Outerspace ] wrote:

Thank you!

1) How can I find out my tax liability? Is there a chart?
(Let's say my income is 50k for a family of 4)

2) regarding the second job, let's say my income is 50k, I for sure do not have enough tax liability (that much I know) to get a $6500 non refundable tax credit, so I would like to know how much I have to earn to fully benefit from this tax credit. To expand, I am eligible for a specific one time non refundable tax credit for 2021, and I'm trying to figure out how I can get it. I would potentially get a short term second job to increase my income..

amother

Outerspace

Mon, Aug 30 2021, 4:35 pm

amother [ OP ] wrote:

The general formula is:
Income (50k)
Less deduction (standard in your case - $25,100)
= taxable income of $24,900
See here for tax tables:
https://www.irs.com/articles/2.....unts/

You would be in the 12% bracket, which means
$1,990 + 12% of amount over $19,900 per the chart
which is $24,900 - $19,900 = $5000 x 12% = $600

So tax is $2,590

Now you know what your tax is upon which to apply your nonrefudable credits.

Your second question is: how much must I earn to generate a tax liability of $6,500?
Well, according to the tax tables I linked to, you're in the 12% bracket until your taxable income is $81,050, which generates a tax bill of $9,328. Therefore we know you must be in the 12% bracket to generate a 6.5k liability. Now we just have a math problem to work out (rather than a tax law problem):

1,990 + 12%X = $6,500
where X is the unknown portion of your taxable income
X = 37,853

So your taxable income is 37,853 + 19,900, or $57,753
Add standard deduction we took off to get taxable income = 82,853 = gross income

So there you have it. You have to earn 82,853 to generate a tax of 6,500 (well, with rounding is 6,532). That said, I never heard of this kind of thinking and I wonder what credit you're talking about. I would run your situation by someone IRL because this sounds off!

amother

Mon, Aug 30 2021, 7:55 pm

amother [ Outerspace ] wrote:

Thank you so so much!!
I have spent quite some time trying to figure out the numbers, so I'm extremely grateful for your explanations!

Regarding which credit it is, I would PM you..

I've been talking about this irl and asking irl so don't feel comfortable posting it, but I am really really grateful!!