Tax Credits and Deductions: Why the Difference Matters

Credits and deductions are often mentioned together, but they do different jobs on a tax return.

What a deduction generally does

A deduction generally reduces income that is subject to tax when the taxpayer qualifies for it.

What a credit generally does

A tax credit generally reduces tax under the rules that apply to that specific credit. Some credits can be refundable, while others are limited by tax liability or other eligibility requirements.

Eligibility is specific

A credit or deduction appearing on a list online does not mean every taxpayer qualifies. Income, filing status, dependents, expenses, timing, and other facts can affect eligibility.

TBG Tax Academy is built to help taxpayers understand concepts like these without turning tax education into a wall of unexplained terminology. Explore Tax Education or visit TBG Tax Academy.

When filing, use Taxpayer Solutions to choose guided DIY or full-service preparation.

This article is general educational information, not individualized tax advice.