I am neither a lawyer or a CPA, but I'll help you out here: A non-refundable credit cannot lower the tax liability below zero. Tax liability has nothing to do with the amount you owe the IRS at the end of the year ... unless you paid exactly zero tax payments during the year. Just in case this is just a case of mixing up terms rather than you not understanding the tax code, look at this snippet from Form 1040: Tax liability, known as 'Tax' on line 44, is the important number from which non-refundable tax credits are applied. Example: Your line 44 'Tax' is $7500 You have non-refundable tax credits worth $7500 + 'Z' You have refundable tax credits worth 'Y' You have made $'X' in prepayments The IRS will send you a check for X+Y -- Generic Example: Your line 44 'Tax' is 'T' You have non refundable tax credits worth 'NR' You have refundable tax credits worth 'R' You have made 'P' total pre payments (T - NR)* - R - P *if T - NR is negative, use zero If the expression is negative, a refund is issued for that absolute value amount. A positive number is the amount you still owe the IRS. Disclaimer: AMT may be the starting number to use instead of line 44.