Tax Credit

A tax credit is a dollar-for-dollar reduction of the income tax you owe, directly lowering your tax bill and potentially increasing your refund. It’s more valuable than a tax deduction because it reduces the tax itself, not just taxable income. Tax credits can be nonrefundable, refundable, or partially refundable, depending on whether they only lower your tax to zero or provide additional refund if the credit exceeds your tax owed.