What is the difference between a tax credit and a deduction?

Tax_Basicstax credittax deductiontaxable incomerefundabletax savings

A tax deduction reduces your taxable income, while a tax credit directly reduces your tax bill dollar-for-dollar. For example, a $1,000 deduction might save you $220 in taxes (at 22% tax rate), while a $1,000 credit saves you exactly $1,000 in taxes. Credits are generally more valuable than deductions. Some credits are refundable, meaning you can get money back even if you don't owe taxes.

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