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What Is a Tax Credit?

A tax credit is a special tax break put in place by Congress and the President that reduces the total amount of tax you owe the government.

In certain cases, tax credits can even be fully refundable, which means that they don’t just reduce the amount of tax you owe, they can even get you money back in the form of a refund.

Tax credits are established for a variety of reasons, to give support to lower income taxpayers, to help people with children, to assist with the cost of education, etc.

Tax credits are not to be confused with deductions, which reduce the amount of income on which you are taxed. Though they too lower your tax bill, their effect is generally more limited than that of tax credits.