Understanding Tax Credits

Tax credits directly reduce the amount of tax you owe. They are typically more beneficial than tax deductions because they provide a dollar-for-dollar reduction of your tax liability. For example, if you owe $2,000 in taxes and have a $500 tax credit, your tax bill is reduced to $1,500. Examples of Tax Credits Child Tax Credit: This credit is available to taxpayers with dependent children under the age of 17. For the 2023 tax year, the credit is up to $2,000 per qualifying child. Earned Income Tax Credit (EITC): Designed to benefit low to moderate-income workers, the EITC can be worth up to $6,935 for a family with three or more qualifying children. Education Credits: Credits such as the American Opportunity Credit and the Lifetime Learning Credit can help offset the cost of higher education.