What's the difference between a tax credit and a tax deduction?

A deduction reduces the amount of income that's taxed, so its value depends on your tax bracket. A credit reduces your tax bill dollar-for-dollar, which is usually more valuable. For example, a $1,000 credit lowers your tax by $1,000, while a $1,000 deduction might lower it by $120–$370 depending on your bracket.

What does 'refundable' vs 'nonrefundable' credit mean?

A nonrefundable credit can reduce your tax to $0 but no further. A refundable credit can take your tax below $0, meaning you get the difference back as a refund. The Earned Income Tax Credit is fully refundable; the Child Tax Credit is partly refundable through the Additional Child Tax Credit.

Can I claim more than one tax credit at once?

Yes. Many filers combine several credits — for example, the Child Tax Credit, the Earned Income Tax Credit, and an education credit — as long as you meet the rules for each. You generally can't use the same expense for two different credits, though (for instance, the same tuition dollars can't fund two education credits).

Which tax credits do families use most often?

The most common are the Child Tax Credit (up to $2,200 per qualifying child under 17 for 2026), the Earned Income Tax Credit for lower-to-moderate income workers, education credits like the American Opportunity Credit, and the Premium Tax Credit for Marketplace health coverage.

Federal Tax Credits Overview

By the TaxPrepGuru editorial teamReviewed against IRS sources per our editorial policyLast updated August 26, 2026

Tax credits reduce your tax dollar-for-dollar. Some are refundable (you can get money back even if you owe $0 in tax); others only reduce tax to zero. This overview explains the major federal credits, who they help, and where to find the current-year details.

Deduction vs. credit — why credits are usually worth more

A deduction lowers the income that gets taxed, so a $1,000 deduction saves you your marginal rate (roughly $120–$370 for most filers). A credit lowers the tax itself, so a $1,000 credit saves the full $1,000. When you have a choice, a credit almost always wins.

Major federal credits at a glance

Credit	Who it helps	2026 max (per)	Refundable?	Key form
Child Tax Credit	Families with kids under 17	$2,200/child	Partly (up to $1,700 ACTC)	Schedule 8812
Credit for Other Dependents	Older/other dependents	$500	No	Schedule 8812
Earned Income Tax Credit	Lower/moderate-income workers	Varies by kids	Yes (fully)	Schedule EIC
American Opportunity Credit	Undergrad students (first 4 yrs)	$2,500	Partly (up to $1,000)	Form 8863
Lifetime Learning Credit	Any post-secondary education	$2,000	No	Form 8863
Premium Tax Credit	Marketplace health coverage	Varies	Yes	Form 8962
Saver’s Credit	Retirement savers (income limits)	$1,000 ($2,000 MFJ)	No	Form 8880

Amounts and rules change yearly — always confirm current figures against the linked IRS pages before you file.

Credits many families use

Child Tax Credit (CTC)

For tax year 2026, the CTC is worth up to $2,200 per qualifying child under 17, with a refundable Additional Child Tax Credit of up to $1,700 per child (earned-income rules apply). Full credit generally requires income at or below $200,000 ($400,000 married filing jointly). You generally need an SSN for the child issued by the due date of the return.

Full tables, phaseouts, and ACTC rules: Child Tax Credit 2026.

Credit for Other Dependents

A smaller nonrefundable credit (up to $500 for 2026) may apply for dependents who do not qualify for the full CTC (for example, certain older dependents).

Earned Income Tax Credit (EITC)

A refundable credit for workers with earned income below annual limits. For 2026 maximums, phaseouts, and the investment-income cap, see EITC 2026: income limits & max credits. The IRS closely reviews EITC claims — keep birth certificates, school records, and residency proof.

Education credits

American Opportunity Credit — undergraduate years, partially refundable, expense and eligibility limits apply
Lifetime Learning Credit — broader education situations, nonrefundable

You generally cannot double-dip the same expenses. Form 1098-T helps but does not decide eligibility alone.

Health coverage

Premium Tax Credit

If you bought coverage through the Health Insurance Marketplace, Form 1095-A feeds Form 8962. Advance payments must be reconciled — skipping this is a common e-file reject.

Energy and vehicles

Residential clean energy and energy-efficient home improvement credits, plus clean vehicle credits, have specific eligibility, manufacturer reporting, and (for vehicles) often dealer-point-of-sale transfer rules. Confirm the model year and your modified AGI against current IRS pages before buying for tax reasons.

Saver’s Credit

Low-to-moderate income filers who contribute to an IRA or workplace retirement plan may qualify for the Retirement Savings Contributions Credit.

How to claim credits

Answer software interview questions completely (dependents, education, energy).
Attach required forms (e.g., 8863, 8962, 5695, 8936 as applicable).
Keep substantiation for at least three years.

Frequently asked questions

What's the difference between a tax credit and a tax deduction?: A deduction reduces the amount of income that's taxed, so its value depends on your tax bracket. A credit reduces your tax bill dollar-for-dollar, which is usually more valuable. For example, a $1,000 credit lowers your tax by $1,000, while a $1,000 deduction might lower it by $120–$370 depending on your bracket.
What does 'refundable' vs 'nonrefundable' credit mean?: A nonrefundable credit can reduce your tax to $0 but no further. A refundable credit can take your tax below $0, meaning you get the difference back as a refund. The Earned Income Tax Credit is fully refundable; the Child Tax Credit is partly refundable through the Additional Child Tax Credit.
Can I claim more than one tax credit at once?: Yes. Many filers combine several credits — for example, the Child Tax Credit, the Earned Income Tax Credit, and an education credit — as long as you meet the rules for each. You generally can't use the same expense for two different credits, though (for instance, the same tuition dollars can't fund two education credits).
Which tax credits do families use most often?: The most common are the Child Tax Credit (up to $2,200 per qualifying child under 17 for 2026), the Earned Income Tax Credit for lower-to-moderate income workers, education credits like the American Opportunity Credit, and the Premium Tax Credit for Marketplace health coverage.

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Important disclaimer

TaxPrepGuru provides general educational information about U.S. federal taxes. We are not a CPA firm, Enrolled Agent practice, or law firm. Nothing on this site is tax, legal, or financial advice. Tax rules change; always confirm figures and forms on IRS.gov or with a qualified tax professional before filing.

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