Tax Credits vs. Deductions – Did You Know?
Tax credits directly reduce the amount of tax you owe, reducing the dollar amount of your tax liability. If you receive a tax credit of $500, that lowers your taxes owed by $500. Tax credits can also be refundable such as the EITC and CTC where, if the credit is more than what you owe, you may receive a refund check.
Tax deductions reduce how much of your income is subject to taxes. If you made $60,000 in a tax year and got a $500 tax deduction, your tax bill would be calculated based on an income of $59,500.