Tax credits are directly deductible from the income tax liability to the IRS. What's great about tax credits is that they generally have a deeper impact on your tax bill by directly reducing the amount of tax you owe, unlike deductibles, which lower your taxable income. There are different types of tax credits like child tax credits
, earned income credit
, etc., varying on your geographic location, industry, etc.
In a tax credit vs tax deduction scenario
, the former is deducted from the tax owed, while the latter is deducted from net taxable income