Tax Credit

tax credit

A reduction in the amount of taxes owed. For example, corporations are permitted a credit on U.S. taxes for taxes paid to foreign governments, and individuals could, for a number of years, claim a tax credit for a portion of expenditures for certain energy-saving home improvements. A tax credit is more valuable than a deduction of an equal amount because the credit results in a reduction in tax owed rather than a reduction in taxable income. See also foreign tax credit.

Main Entry: tax credit
Function: noun
: an amount that may be subtracted from the sum of tax otherwise due and that is distinguished from a deduction applied to gross income in the calculation of taxable income —compare EXEMPTION