A refundable tax credit is a type of negative income tax. If the credit exceeds the tax liability, the government pays the taxpayer the excess credit. A nonrefundable tax credit resembles a direct subsidy. It may only be used to offset the taxpayer's tax liability. Therefore, if the credit exceeds the tax liability, the taxpayer receives no payment and, at best, can only carryback or carryforward the excess credit. The adoption credit is a refundable tax credit. The business energy tax credit is an example of a nonrefundable credits. \ B.\ A refundable tax credit resembles a direct subsidy. Because it can fully offset an income tax liability and generate a tax refund, it is a type of negative income tax. A nonrefundable tax credit may only be used to offset the taxpayer's tax liability. If the credit exceeds the tax liability, the taxpayer receives no refund and, at best, can only carryback or carryforward the excess credit. The earned income credit is a refundable tax credit. Dependent care credits are nonrefundable credits. \ C.\ A refundable tax credit resembles a direct subsidy. It is a type of negative income tax. If the credit is less than the tax liability, the government pays the taxpayer the excess credit. A nonrefundable tax credit may only be used to offset the taxpayer's tax liability. Therefore, if the credit is less than the tax liability, the taxpayer receives no payment and, at best, can only carryback or carryforward the excess credit. The earned income credit is a refundable tax credit. Dependent care credits and tax credits for the elderly are examples of nonrefundable credits. \ D.\ A refundable tax credit resembles a direct subsidy. It is a type of negative income tax. If the credit exceeds the tax liability, the government pays the taxpayer the excess credit. A nonrefundable tax credit may only be used to offset the taxpayer's tax liability. Therefore, if the credit exceeds the tax liability, the taxpayer receives no payment and, at best, can only carryback or carryforward the excess credit. Dependent care credits and tax credits for the elderly are refundable tax credit. The earned income credit is an example of a nonrefundable credits.