Understanding Refundable Tax Credits

Example: Take the case of Lisa, a 30-year-old U.S. citizen who works as a dental assistant and makes up to $48,000 in 2025. Lisa has one child and files her U.S. tax return as “married filing separately.”  Her income of $48,000 is below the Earned Income Tax Credit (EITC) limit for one qualifying child, $50,434. In that case, Lisa is eligible to claim the EITC for an amount of up to $4,328. 

Now, let’s see whether EITC is available to foreigners in the next section.

Claiming Earned Income Tax Credit as a Foreigner

Many foreigners who earn a living while living in the U.S. may also be eligible for the EITC. However, they should be mindful of the following qualifying conditions:

• The person should be a U.S. citizen or a U.S. tax resident who has lived in the U.S. for more than half of the tax year, unless an exception applies as discussed below.
• One should have a valid Social Security number.

Example: Sarah, an international student from Brazil, works part-time at a university in Texas and wonders if she can claim the EITC after hearing about it from her classmates. As an F-1 student in the U.S. for two years, she works 20 hours per week on campus, has a valid Social Security number, and files taxes as a non-resident of the U.S. for tax purposes. However, Sarah doesn’t qualify for the EITC because she has a non-resident tax status as an F-1 visa holder.

Special Rules for Married Couples (Joint Filing): 

The EITC may still be available to a spouse who is a U.S. citizen or tax resident, and the other spouse is a non-resident. This applies when they file jointly as a married couple. Here, the non-resident spouse opted to be treated as a U.S. resident. But the other spouse should be a U.S. citizen or U.S. resident alien for the entire tax year.

Example: Michael is a U.S. citizen working as a software engineer in Boston, while Nina is a German citizen residing in Germany. They got married in September of the same year, and now they’re preparing their tax return.

Nina did not spend any time in the U.S., so she is a non-resident. Michael and Nina are filing their taxes jointly. Because Michael is a U.S. citizen, and Nina chose to be treated as a U.S. resident, the couple can claim the EITC on their joint tax return.

Now, let’s understand the other refundable credits available.   Let’s start with the Additional Child Tax Credit.

The Additional Child Tax Credit:

If you have a child, you might be eligible for the Child Tax Credit. This credit is divided into two portions. One portion is non-refundable, while the other one is refundable. The refundable portion of the Child Tax Credit is the Additional Child Tax Credit (ACTC). For 2024, you can receive up to $1,700 per child as the Additional Child Tax Credit (ACTC).

 To qualify for ACTC, the child should:

• Have a Social Security Number.
• Be under 17 at the end of the tax year.
• Be claimed as a dependent on your tax return.
• Have lived with you for more than half the tax year.
• Be a U.S. citizen/national, or a U.S. resident alien.
• Have not provided more than half of their own support during the tax year.

U.S. citizens residing in the U.S. or abroad may be eligible to claim the Additional Child Tax Credit (ACTC) if they have earned income. If you earn income from abroad, you typically use the Foreign Earned Income Exclusion (FEIE) to lower your taxable income. However, if you use the FEIE to exclude your foreign earned income, you are generally not able to claim the Additional Child Tax Credit.

Alternatively, a U.S. citizen may opt for the Foreign Tax Credit instead of the FEIE to reduce their taxable income. You are usually not allowed to choose both options. However, if you select the Foreign Tax Credit, you may be eligible for the Additional Child Tax Credit. This is because, unlike the FEIE, the Foreign Tax Credit does not reduce the income considered for ACTC purposes. It is also important to review the relevant tax treaty provisions to determine if your income is exempt or eligible for reduced tax rates under the treaty.

Now, let’s understand the American Opportunity Child Tax Credit in the next section.

American Opportunity Tax Credit 

The American Opportunity Tax Credit (AOTC) is an education tax credit of up to $2,500 for qualified education expenses, as of 2025. Part of this credit is refundable, while the other is nonrefundable. If the credit reduces what you owe to $0, then you can receive 40% of the remaining amount, up to $1,000, as a refund. The remaining 60% is nonrefundable.

To qualify, the student should be enrolled at least half-time in a postsecondary college program. Also, the student should meet the following criteria:

• Not have a felony drug conviction at the end of the tax year.
• Have not claimed the AOTC for more than four tax years.
• Have not completed the first four years of higher education.

Example: Let’s say Alex, a second-year college student, paid $15,000 in qualified education expenses. Therefore, he can qualify for a maximum credit of $2,500. If his tax bill is zero, then he may get up to $1,000 refund (which is 40% of $2,500). This means that the tax credit is only partially refundable.

Many international students in the U.S. might wonder if they can claim AOTC. The AOTC is generally available to U.S. citizens or resident aliens. Many International students come to the U.S. on a student visa. Usually, a student studying in the United States on a student visa (e.g., an F-1 visa) is treated as a non-resident alien. Therefore, they generally may not claim the AOTC unless they meet the requirements for resident alien status under U.S. tax law.

Now, let’s understand the Premium Tax Credit in the next section.

Premium Tax Credit

The Premium Tax Credit is a form of refundable tax credit that reduces your insurance premium costs when you enroll in a health plan via the Health Insurance Marketplace.

When you apply for Marketplace coverage, you can get this credit in advance based on your household information and estimated income. The Advanced Premium Tax Credit is the name given to this. To lower your monthly premiums, you can let the Marketplace pay your eligible amount directly to your insurance provider. If you did not receive advance payments, you may still qualify for a refundable Premium Tax Credit, which can be claimed on your tax return based on your actual income.

To qualify for the tax credit, you should have health insurance through the Health Insurance Marketplace and meet income and eligibility requirements set by the IRS. If you were eligible, you may qualify for a refundable Premium Tax Credit. for a refundable Premium Tax Credit.

U.S. citizens and lawfully present in the U.S. generally qualify for Premium Tax Credits (PTC) through the Health Insurance Marketplace. However, they may not be eligible for other  

The OBBBA modifies eligibility for premium tax credits under the ACA by replacing the “lawfully present” standard with a narrower definition. Which is limited to lawful permanent residents, Cuban and Haitian entrants as defined in the Refugee Education Assistance Act of 1980, and individuals residing under the Compacts of Free Association.

Conclusion

Refundable tax credits are some of the most powerful tax benefits available to individual taxpayers in the U.S. Generally, you receive a refund based on the taxes you’ve already paid. At the end of the year, any amount you owe to the IRS is deducted from what you paid throughout the year. In essence, the refund represents the extra money you contributed. However, with refundable tax credits, the refund you receive comes directly from the IRS and is not related to the amount you paid.

It’s essential to understand how refundable credits work—such as the Earned Income Tax Credit etc.—to access these significant financial benefits that can lead to substantial cash back during tax season.

By taking advantage of all eligible refundable credits, taxpayers can significantly increase their refunds and keep more of their hard-earned money. Effectively utilizing these available tax credits can lower your tax bill, boost your potential refund, and put more money back in your pocket.

 For detailed guidance on claiming your tax credits, please get in touch with Arora Law P.C. at (201) 620-1482. Our team is ready to assist you with international tax law and related compliance.