Tax credits come in two main flavors: refundable and nonrefundable. A refundable credit can produce a refund even if your tax liability is zero — it’s like getting cash back. A nonrefundable credit can reduce your tax to zero, but not below zero; any excess is not paid out. This distinction matters for lower-income taxpayers who might rely on refundable credits to produce refunds. The term “refundable” is easy to misunderstand; many taxpayers assume all credits can produce refunds, which is not true. This question asks for the right definition of a refundable tax credit.