Exploring Tax Credits vs Tax Deductions

Brian Landzaat |

Tax credits and deductions can be used to help lower your tax bill or increase your refund. A tax credit may have a larger impact because it reduces taxes owed rather than reducing the income you'll get taxed on.


Tax Credits

Tax Deductions


Directly reduce the amount of tax you owe, dollar for dollar.

Reduce the amount of your income that is subject to tax.

Effect on Taxable Income

Do not affect the amount of taxable income.

Lower your taxable income, which indirectly reduces your tax liability.


Usually more valuable than deductions because they reduce your tax bill by a fixed amount.

The value depends on your marginal tax rate. The higher your tax rate, the more valuable the deduction.


Can be refundable or non-refundable. Refundable credits can give you a refund even if you owe no tax.

Primarily reduce taxable income. Cannot result in a refund on their own.


- Earned Income Tax Credit (EITC)
- Child Tax Credit (CTC)
- American Opportunity Tax Credit (AOTC)

- Mortgage interest deduction
- Charitable contributions
- Medical and dental expenses


Specific qualifications must be met, which can include income limits, expenses of a certain type, or investments in specific areas.

Generally available to all taxpayers who incur certain types of expenses, though there are often limits and thresholds.


The information provided here is not intended as tax or legal advice and should not be taken as such; consult a qualified attorney or certified public accountant for professional guidance.