A tax credit is a type of tax incentive that can reduce the amount of money a taxpayer owes

the government. Unlike a tax deduction, which reduces taxable income, a taxpayer can
subtract a tax credit from the amount of taxes they owe, lowering their tax liability dollar-
for-dollar.

Tax credits reduce your tax liability dollar-for-dollar. For example, if your 2016 Federal
income tax is $3,500, and you are entitled to a $1,000 tax credit, it reduces the amount of
your tax bill to $2,500. Tax credits are offered by the federal government, and your state or
local government may have its own.

A tax credit is designed to incentivize taxpayers to do certain things, or to make certain

activities more affordable. The Lifetime Learning Credit is designed to lower the financial
burden of continuing education, and the Retirement Savings Contributions Credit is
intended to incentivize retirement saving.

Most tax credits are offered as a percentage of certain expenses, up to a maximum amount.
In addition, many tax credits are subject to income limitations. For example, there are two
tax credits available for higher education expenses, both of which are not available to high-
income taxpayers.