Form 1040 Line 18: Other Nonrefundable Credits

How Nonrefundable Credits Work

Think of it this way: your tax on Line 14 minus the child tax credit on Line 17 gives you a remaining tax liability. Line 18’s credits can reduce that remaining amount, but if your credits exceed the tax, you don’t get a check for the difference. The excess just disappears (with some exceptions—certain credits carry forward to future years).

This matters for planning. If you’re already at zero tax after the child tax credit, piling on more nonrefundable credits doesn’t help you this year. You’d want to time expenses differently or consider whether a refundable alternative exists.

Education Credits (Form 8863)

American Opportunity Credit

Worth up to $2,500 per eligible student for the first four years of post-secondary education. It covers tuition and course materials. The credit phases out between $80,000 and $90,000 of MAGI for single filers ($160,000–$180,000 for joint). Here’s the key detail: 40% of the American Opportunity Credit (up to $1,000) is refundable. The remaining 60% is nonrefundable and flows to Line 18 through Schedule 3.

Lifetime Learning Credit

Up to $2,000 per return (not per student) for any post-secondary coursework—no four-year limit, and it covers graduate school. The phase-out is the same as the American Opportunity Credit. Entirely nonrefundable. One thing people miss: you can’t claim both credits for the same student in the same year, but you can claim the American Opportunity for one child and Lifetime Learning for another on the same return.

Foreign Tax Credit (Form 1116)

If you paid income tax to a foreign country—on foreign dividends, rental income abroad, or earnings from foreign employment—the foreign tax credit prevents double taxation. You can either take it as a credit on Form 1116 or as an itemized deduction on Schedule A. Almost always, the credit is more valuable.

For most people with only foreign dividends from mutual funds, the math is straightforward: if total foreign taxes paid are $300 or less ($600 married filing jointly), you can skip Form 1116 entirely and claim the credit directly. Above those thresholds, Form 1116 requires you to calculate a limitation based on the ratio of foreign-source income to worldwide income.

Unused foreign tax credits carry back one year and forward ten years. So even if you can’t use the full credit this year, it’s not lost.

General Business Credit (Form 3800)

This is actually a bundle of credits rolled into one form. Small business owners and investors in certain ventures encounter these most often:

• Small Employer Health Insurance Credit—for businesses with fewer than 25 full-time equivalent employees paying average wages below $58,000
• Research and Development Credit—available to businesses spending on qualified research activities
• Work Opportunity Tax Credit—for hiring individuals from targeted groups (veterans, ex-felons, long-term unemployed)
• Low-Income Housing Credit—for investors in qualified affordable housing projects, often passed through on a Schedule K-1

General business credits that can’t be used in the current year carry back one year and forward 20 years, giving them a long shelf life.

Adoption Credit (Form 8839)

For 2025, the maximum adoption credit is approximately $16,810 per child. It covers reasonable adoption expenses: court costs, attorney fees and other expenses directly related to the legal adoption. The credit phases out for MAGI between roughly $252,150 and $292,150.

Special-needs adoptions get the full credit amount regardless of actual expenses—even if you spent less than $16,810. The credit is nonrefundable but carries forward for up to five years, which helps since many adoptions span multiple tax years.

Other Credits on Schedule 3, Part I

• Retirement Savings Contributions Credit (Saver’s Credit)—up to $1,000 ($2,000 joint) for low-to-moderate-income taxpayers contributing to a 401(k) or IRA. AGI limits are tight: $38,250 for single filers in 2025.
• Residential Energy Credits—the Energy Efficient Home Improvement Credit (up to $3,200/year for qualifying upgrades like heat pumps, insulation, windows) and the Residential Clean Energy Credit (30% of the cost of solar panels, battery storage, etc.)
• Elderly or Disabled Credit—a small credit for low-income taxpayers age 65+ or permanently disabled. Rarely claimed because the income thresholds are very low.

A Surprising Planning Point

How Line 18 Fits Into Your Return

Line 18 subtracts from Lines 14–17 to produce Line 19. From there, other taxes (Line 21) get added—self-employment tax, additional Medicare tax, and similar items—to arrive at your total tax on Line 22. The interplay between credits and additional taxes means that even a large Line 18 credit doesn’t necessarily mean a small total tax bill.

Sources & References

• IRS — About Form 8863, Education Credits
• IRS — About Form 1116, Foreign Tax Credit
• 26 U.S.C. §25A — American Opportunity and Lifetime Learning Credits
• IRS — About Form 8839, Qualified Adoption Expenses