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What is a Tax Credit?
Unlike tax deductions, which reduce the amount of income to be taxed, tax credits reduce your actual tax liability, also known to as your tax bill. So in general, a $200 credit is worth more than a $200 deduction. Both provide tax breaks, but credits go farther by design. If you don’t have a tax bill, some credits can even lead to a refund. These are known as refundable credits, and the three most common are the Earned Income Credit, the Child Tax Credit, and the American Opportunity Tax Credit.