what is the difference between a tax credit and a tax deduction 
tax credits directly reduce the amount of tax you owe while tax deductions reduce your taxable income for example a tax credit of 1 000 lowers your tax bill by that same 1 000 on the other hand a 1 000 tax deduction lowers your taxable income the amount of income on which you owe taxes by 1 000 so for example if you fall into the 22 tax bracket a 1 000 deduction would save you 220 2the bottom linea tax credit is a financial benefit provided by the government it is an amount of money that reduces the dollar amount of taxes owed refundable tax credits provide a refund of the amount of the credit that still exists after reducing taxes owed to zero nonrefundable tax credits allow for no such refund their benefit only extends to a reduced tax liability 27tax deductions differ from tax credits in that they reduce taxable income not the amount of an individual s tax liability 2