Description
Tax credits and deductions both reduce what you owe — but they work very differently. We break down how each one works, the difference between refundable and non-refundable credits, and show a side-by-side comparison so you can see the real impact on your tax bill.
Questions answered in this video:
• What’s the difference between a tax credit and a tax deduction?
• What’s a refundable vs. non-refundable tax credit?
• Which saves me more money — credits or deductions?
Key takeaways:
• A tax deduction reduces your taxable income (e.g., $5K retirement contribution means you’re taxed on $15K instead of $20K)
• A tax credit directly reduces the tax you owe (e.g., $3K credit drops a $10K bill to $7K)
• Refundable credits can put money in your pocket — if your credit exceeds your tax bill, you keep the difference
• Non-refundable credits can only reduce your bill to $0; you lose any unused portion
• Dollar for dollar, credits are more valuable than deductions
Our mission is to empower our members to make financial progress, one step at a time. We believe progress is a journey made easier with help, so we root our content in trusted sources and independent research to give you the knowledge to reach your goals.
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Learn more — check out this article: Tax Credits vs. Deductions: https://www.creditkarma.com/tax/i/tax-credits-vs-deductions
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