A tax credit is an amount you can subtract from the tax you would otherwise owe. Unlike a deduction or exemption, a credit is a dollar-for-dollar reduction of your tax bill.
For example, if you pay someone to care for your young children or for elderly or disabled relatives, you may be able to subtract that money, up to a set limit.
Among the other tax credits for which you may qualify are the Hope Scholarship and Lifetime Learning education credits, a credit for purchasing a hybrid car, or a credit for adopting a child. The list changes from time to time.
Some but not all credits are available to people whose income is less than the ceilings Congress sets. Other credits are available to anyone who has spent the money.
- Browse Related Terms: adjusted gross income (AGI), Alternative minimum tax (AMT), Deduction, Earned Income Credit (EIC), Exemption, Head of household, Modified adjusted gross income (MAGI), Real property tax, Tax credit
A dollar-for-dollar reduction in the tax. Can be deducted directly from taxes owed.
- Browse Related Terms: federal income tax, infant industry, protective tariff, public goods and services, revenue tariff, tariff, tax code, Tax credit, tax cut, tax evasion
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