Tax Credit

Personal Finance

A tax credit reduces your tax owed dollar-for-dollar — far more valuable than a deduction of the same size. A $1,000 credit cuts your tax bill by $1,000; a $1,000 deduction at a 22% marginal rate only saves $220. The major federal credits: Child Tax Credit ($2,000 per child under 17), Earned Income Tax Credit (refundable, varies with income and dependents), American Opportunity Credit ($2,500 per student for first four years of college), Saver's Credit (up to $1,000 for low-income retirement savers), Residential Clean Energy Credit (30% of solar/EV charger installation). Credits are either refundable (you get the excess as cash) or non-refundable.