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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.
tax creditsee CORPORATION TAX, DIVIDEND.
tax creditsee NEGATIVE INCOME TAX.
A direct reduction against income tax liability. Credits reduce taxes dollar-for-dollar. Common tax credits include
1. Earned income credit, used to assist low-income taxpayers.
2. Saver's tax credit, for contributions to qualified retirement plans by low-income individuals.
3. Child-related credits for child- and dependent-care expenses, adoption expenses, and the child tax credit.
4. Education credits, particularly the Hope credit and the lifetime learning credit.
5. Credits for the elderly or disabled.
6. Mortgage credit certificate programs by some state and local governments may be used for tax credits on federal income taxes. 7. Work opportunity credits (for businesses).
8. Rehabilitation credits.
Contrast with a tax deduction, which merely reduces income on which taxes are calculated.