Which of the following best defines a Nonrefundable Credit?

A nonrefundable credit is defined as a credit that can only reduce an individual's tax liability to zero but does not result in a refund beyond that amount. This means that if a taxpayer has a nonrefundable credit that exceeds their total tax liability, they can only use it to offset their tax owed, and any remaining credit will be lost.

For instance, if a taxpayer has a total tax liability of $500 and qualifies for a nonrefundable credit of $700, they can only use $500 of that credit to reduce their tax owed to zero. The remaining $200 of the credit will not be refunded to them.

This characteristic differentiates nonrefundable credits from refundable credits, which can provide a refund if the credit exceeds the tax owed.

In this context, other options do not accurately capture the essence of a nonrefundable credit. They either describe aspects of refundable credits or misstate the nature of tax credits overall. Thus, the best definition for a nonrefundable credit is one that emphasizes its limitation to the amount of tax owed.