Can You Get More Back in Taxes Than You Paid? Here’s How

Many taxpayers assume the most they can receive as a tax refund is what they originally paid. However, refundable tax credits can result in a refund exceeding the amount withheld from paychecks or paid throughout the year. These credits go beyond reducing tax liability—they can provide extra money even if no tax is owed.

How Refundable Credits Work

Unlike deductions or nonrefundable credits, which only lower tax liability, refundable credits can generate a refund even if no tax is due. If a taxpayer’s total liability is negative after applying deductions and credits, the IRS issues a payment for the excess amount. This makes refundable credits particularly beneficial for lower-income households.

Eligibility depends on income, filing status, and other IRS criteria. Some credits increase with earned income, while others phase out at higher income levels. Refundable credits are claimed when filing a tax return, and the IRS verifies eligibility based on reported income, dependents, and other qualifying factors. Some credits require additional documentation, especially those prone to fraud. The IRS may delay refunds for returns containing refundable credits to conduct extra verification.

Examples of Refundable Tax Credits

Several refundable tax credits allow taxpayers to receive a refund exceeding what they paid in taxes. These credits provide financial relief, particularly for lower-income individuals and families.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) assists low- to moderate-income workers by providing a refundable credit based on earnings and family size. The credit increases with earned income up to a threshold, then phases out as income rises. For 2023, the maximum EITC ranges from $600 for taxpayers without children to $7,430 for those with three or more qualifying children.

To qualify, taxpayers must have earned income from employment or self-employment and meet IRS income limits. A married couple filing jointly with three children, for example, must have an adjusted gross income (AGI) below $63,398. Investment income must also be under $11,000. The credit is calculated using a percentage of earned income, with phase-in and phase-out rates based on filing status and dependents.

Because the EITC is fully refundable, if the credit exceeds tax liability, the IRS issues the remaining amount as a refund. However, refunds for returns claiming the EITC may be delayed until mid-February to prevent fraud.

Additional Child Tax Credit

The Additional Child Tax Credit (ACTC) allows taxpayers who qualify for the Child Tax Credit (CTC) but do not receive the full benefit due to insufficient tax liability to claim a refundable portion. The CTC provides up to $2,000 per qualifying child under 17, but only $1,600 of that amount is refundable for 2023.

To claim the ACTC, a taxpayer must have earned income exceeding $2,500. The refundable portion is calculated as 15% of earned income above this threshold, up to the maximum refundable amount per child. For instance, a taxpayer with $20,000 in earned income could receive a refundable credit of up to $2,625 ($20,000 – $2,500 = $17,500 × 15%), but the total refund cannot exceed $1,600 per child.

The ACTC benefits families with low tax liability by ensuring they receive financial support even if they do not owe enough taxes to claim the full nonrefundable Child Tax Credit. This credit is claimed using IRS Form 8812, subject to income limits and dependent qualifications.

Premium Tax Credit

The Premium Tax Credit (PTC) helps individuals and families afford health insurance purchased through the Health Insurance Marketplace. This refundable credit is based on household income and the cost of premiums.

Eligibility depends on income relative to the federal poverty level (FPL). Generally, households with incomes between 100% and 400% of the FPL qualify, though temporary expansions under the American Rescue Plan Act and Inflation Reduction Act have removed the upper income limit through 2025. The credit covers the difference between the cost of a benchmark health plan and a percentage of household income deemed “affordable” by the IRS.

Taxpayers can receive the PTC in advance as a subsidy applied directly to insurance premiums or claim it when filing their tax return. If they receive more in advance payments than they qualify for, they may have to repay the excess. If they qualify for a larger credit than they received, they can claim the difference as a refundable credit.

Withholding and Overpayment

The amount of tax withheld from a paycheck is based on Form W-4, which instructs employers on how much to deduct for federal income taxes. If too much is withheld, the excess is refunded when filing a return. If too little is withheld, additional taxes may be owed, and underpayment penalties could apply. Adjusting withholding allowances can help manage cash flow and avoid large refunds or unexpected tax bills.

Overpayment can also occur when estimated tax payments exceed final liability. This is common among self-employed individuals and those with investment income who make quarterly payments. If estimates are too high, the excess is refunded. Underestimating taxes can result in penalties under Internal Revenue Code (IRC) rules, which generally apply if payments are insufficient or late. The IRS typically waives penalties if total payments equal at least 90% of the current year’s liability or 100% of the prior year’s tax, whichever is lower (110% for higher-income taxpayers).

Taxpayers who consistently receive large refunds may benefit from adjusting their W-4 to reduce withholding, allowing them to take home more money each paycheck instead of waiting for a refund. The IRS Tax Withholding Estimator can help determine the right withholding amount based on expected income, deductions, and credits.

Potential Adjustments if Over-Refunded

Receiving a refund that exceeds expectations may indicate miscalculations in financial planning. If the IRS detects discrepancies through automated matching systems, such as the Automated Underreporter (AUR) program, they may issue a notice requiring repayment with potential interest. Taxpayers should review IRS Form 1040 and supporting schedules to ensure reported amounts align with employer-provided Forms W-2 and 1099.

Another issue arises when refunds result from misapplied estimated tax payments or excess credit carryovers. For example, self-employed individuals who over-allocate prior-year overpayments to future tax liabilities may inadvertently reduce cash flow. Adjusting estimated tax calculations using IRS Form 1040-ES can prevent excessive prepayments and ensure funds are allocated efficiently. Similarly, refundable credits that rely on income thresholds, such as the Net Premium Tax Credit, may require repayment if income later exceeds qualifying limits under IRC rules.