Tax Credit

A dollar-for-dollar reduction of the tax owed, more valuable than a deduction of the same size.

A tax credit directly reduces the amount of tax owed, dollar for dollar, unlike a deduction, which only reduces the income that gets taxed. A $1,000 tax credit saves exactly $1,000, while a $1,000 deduction saves only as much as the taxpayer's marginal tax rate, making credits generally far more valuable.

The $2,000 tax credit for her child cut her tax bill directly, worth far more than a deduction of the same size would have been.