Tax Credit

A Tax Credit is a direct reduction of the tax owed, offering a dollar-for-dollar decrease in tax liability.

Types of Tax Credits:

• Nonrefundable Credits: Reduce tax liability to zero but do not result in a refund if the credit exceeds the tax owed.

• Refundable Credits: If the credit exceeds the tax owed, the excess is refunded to the taxpayer.

• Partially Refundable Credits: A portion of the credit is refundable, while the remainder is nonrefundable.

Examples:

• Child Tax Credit: Provides financial relief to taxpayers with dependent children.

• Education Credits: Such as the American Opportunity Credit, assist with higher education expenses.