Tax Credits

Tax credits matter because they reduce tax after liability has been computed. This section helps readers distinguish refundable and nonrefundable credits and understand where major household credits fit on a return.

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• Child Tax Credit
• Earned Income Tax Credit
• Foreign Tax Credit
• Refundable Tax Credit
• Nonrefundable Tax Credit

What This Section Covers

• The difference between a credit and a deduction.
• Why some credits can create or enlarge a refund while others cannot.
• How credits affect the bottom of the return after taxable income has already been calculated.

Related Sections

• Income Tax Basics
• Deductions and Adjustments
• Filing Status and Dependents

In this section

• Child Tax Credit
  The child tax credit is a tax credit tied to qualifying children and can reduce tax owed, with some rules allowing refundable benefit.
• Earned Income Tax Credit
  The earned income tax credit is a credit for qualifying taxpayers with earned income and is often discussed as a major refundable credit.
• Foreign Tax Credit
  The foreign tax credit is a tax credit concept that can reduce tax by giving credit for qualifying foreign taxes under the applicable rules.
• Nonrefundable Tax Credit
  A nonrefundable tax credit can reduce tax liability but generally cannot continue providing tax benefit after liability reaches zero.
• Refundable Tax Credit
  A refundable tax credit can still provide benefit even after tax liability has been reduced to zero.