Tax Credit

A direct, dollar-for-dollar reduction in tax liability, more valuable than a deduction of the same amount because it reduces tax owed rather than taxable income.

## Tax Credit

A tax credit reduces the actual tax owed, making it significantly more valuable than a deduction. A $1,000 credit saves $1,000 in tax regardless of the taxpayer's bracket.

### Types

- **Nonrefundable**: Can reduce tax to zero but generates no refund beyond that.
- **Refundable**: Can result in a payment even if the taxpayer owes no tax.
- **Partially refundable**: Refundable up to a limit.

### Common US Tax Credits

| Credit | Max Amount | Refundable? |
|--------|-----------|-------------|
| Child Tax Credit | $2,000/child | Partially ($1,700) |
| Earned Income Tax Credit | $7,830 (3+ children) | Yes |
| American Opportunity Credit | $2,500 | Partially ($1,000) |
| Child & Dependent Care Credit | $3,000–$6,000 | No |
| Saver's Credit | $1,000–$2,000 | No |

### International Credits

Many countries use tax credits: Canada's Basic Personal Amount credit, the UK's Marriage Allowance, Australia's Low Income Tax Offset (LITO), and France's tax credit for employing household workers.

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