Which of the following best describes a nonrefundable tax credit?

• A. A tax credit that can reduce a taxpayer's liability to zero, but any excess credit is not refunded to the taxpayer.
• B. A tax credit that is only available to corporations.
• C. A tax credit that is paid to the taxpayer even if it exceeds their total tax liability.
• D. A tax credit that can only be used to offset future tax liabilities.

Answer: (A)

Verified step by step guidance

1. Understand the concept of a nonrefundable tax credit: A nonrefundable tax credit is a type of tax credit that can reduce a taxpayer's tax liability to zero, but any excess credit beyond the tax liability is not refunded to the taxpayer.
2. Compare the definition of a nonrefundable tax credit with the options provided in the problem.
3. Option 1: 'A tax credit that can reduce a taxpayer's liability to zero, but any excess credit is not refunded to the taxpayer.' This matches the definition of a nonrefundable tax credit.
4. Option 2: 'A tax credit that is only available to corporations.' This is incorrect because nonrefundable tax credits can apply to individuals as well, not just corporations.
5. Option 3: 'A tax credit that is paid to the taxpayer even if it exceeds their total tax liability.' This describes a refundable tax credit, not a nonrefundable tax credit. Option 4: 'A tax credit that can only be used to offset future tax liabilities.' This is incorrect because nonrefundable tax credits apply to current tax liabilities, not future ones.