What type of credit allows a taxpayer to receive a refund for any amount exceeding their tax liability?

A refundable credit is designed to benefit taxpayers by allowing them to receive a refund for any portion of the credit that exceeds their tax liability. This means that even if the credit amount surpasses what they owe in taxes, they will still receive the difference as a refund.

For example, if a taxpayer has a tax liability of $500 and qualifies for a $700 refundable credit, they will not only eliminate their tax liability but also receive a $200 refund. This feature makes refundable credits particularly valuable, as they can provide additional financial support beyond merely reducing the amount owed in taxes.

In contrast, nonrefundable credits can only reduce a taxpayer's tax liability to zero, and any excess cannot be refunded. The Lifetime Learning Credit and Tuition and Fees Deduction are specific tax benefits related to education expenses, but only the refundable credit allows for a refund exceeding the tax owed, highlighting its unique benefit to taxpayers.