What is true about the Child and Dependent Care Credit?

The statement that it reduces tax liability but does not result in a tax refund is accurate in regard to the Child and Dependent Care Credit. This credit is designed to help working taxpayers offset some of the costs of childcare for their qualifying dependents, allowing them to work or look for work.

When taxpayers claim this credit, it directly lowers their overall tax liability based on the qualifying expenses incurred for care provided to children under the age of 13 or other dependents who are physically or mentally unable to care for themselves. Importantly, this credit is classified as a non-refundable credit, meaning that it can only reduce the amount of tax owed to zero, but it does not generate any refund beyond that.

A refundable credit, on the other hand, would allow taxpayers to receive a refund if their credit exceeds their tax liability. Thus, while qualifying taxpayers can reduce their taxes due through the Child and Dependent Care Credit, they will not receive a check or payment back from the IRS unless they have other refundable credits.

In summary, the Child and Dependent Care Credit effectively lowers tax obligations without creating an opportunity for a tax refund, making the statement about reducing tax liability accurate.