Tax Credit

AAA

DEFINITION of 'Tax Credit'

An amount of money that a taxpayer is able to subtract from the amount of tax that they owe to the government. The value of a tax credit depends on what the credit is being provided for, and certain types of tax credits are granted to individuals or businesses in specific locations, classifications or industries.

INVESTOPEDIA EXPLAINS 'Tax Credit'

Unlike deductions and exemptions, which reduce the amount of your income that is taxable, tax credits reduce the actual amount of tax owed. Governments may grant a tax credit to promote a specific behavior, such as replacing older appliances with more efficient ones, or to help disadvantaged taxpayers by reducing the total cost of housing.

VIDEO

Loading the player...
RELATED TERMS
  1. Deferred Tax Asset

    A deferred tax asset is an asset on a company's balance sheet ...
  2. Tax Relief

    Any program or incentive that reduces the amount of tax owed ...
  3. Tax Free

    Tax free refers to certain types of goods and/or financial products ...
  4. Business Tax Credits

    A number of federal income tax credits available to businesses ...
  5. General Business Tax Credit

    The total value of all the individual credits to be applied against ...
  6. Miscellaneous Tax Credits

    A group of less common tax credits that apply to taxpayers in ...
RELATED FAQS
  1. Are Roth IRAs tax deductible?

    Contributions made to a Roth IRA are not tax deductible, although you may be able to take a tax credit, depending on your ... Read Full Answer >>
  2. Are there special benefits for U.S. armed forces personnel?

    If you are a member of the military, you may be afforded special tax benefits that might not be available to other taxpayers. ... Read Full Answer >>
  3. How can I use a child tax credit?

    You may be able to reduce the amount of taxes you owe by up to $4,000, by claiming the child tax credit of up to $1,000 ... Read Full Answer >>
  4. How can I tell if I'm eligible for an EITC?

    According to the IRS, over 22 million taxpayers received $41.4 billion dollars in earned income tax credit (EITC) for tax ... Read Full Answer >>
  5. How do I get credit for my retirement plan contributions?

    There is an added incentive for adding to your retirement nest egg, if your income falls within certain limits. Under this ... Read Full Answer >>
Related Articles
  1. Insurance

    Getting A Job As The Tax Man

    If you'd like the IRS to pay you some money for a change, consider a career working in taxes.
  2. Entrepreneurship

    Tax Credit For Plan Expenses Incurred By Small Businesses

    Determine whether your business is eligible to claim a tax credit for establishing a retirement plan.
  3. Savings

    Saver's Tax Credit: A Retirement Savings Incentive

    Here's another reason to put money toward your retirement nest egg.
  4. Taxes

    Clearing Up Tax Confusion For College Savings Accounts

    Put your kids through school without being hounded by the tax man.
  5. Taxes

    The Impact Of U.S. Corporate Taxation On Investment Decisions And CFC Transfer Pricing

    To avoid taxation, businesses do careful tax planning, taking into consideration more than one country's taxation system.
  6. Home & Auto

    A Solar-Powered Home: Will It Pay Off?

    Outfitting your home with solar power can be a long-term investment, or just a step toward greener living.
  7. Options & Futures

    Green Mortgages Save Money And The Environment

    This emerging type of loan is not just for treehuggers. It rewards you for eco-friendly housing, in the form of cold, hard, cash.
  8. Taxes

    Give Your Taxes Some Credit

    A few tax credits can greatly increase the amount of money you get back on your return.
  9. Taxes

    Paying Uncle Sam: From Tobacco To $1 Trillion

    The services we rely on, like education, law and security, were built on taxes.
  10. Stock Analysis

    Why Should Investors Read The Annual Reports?

    All investors should read each year the annual report from their top stocks, which contains valuable information and facts they weren't probably aware of.

You May Also Like

Hot Definitions
  1. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  2. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  3. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  6. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
Trading Center