Tax Credit vs Tax Deduction
Definition
Deduction reduces taxable income (if you're in 24% bracket, $1k deduction saves $240). Credit directly reduces tax owed ($1 credit equals $1 less tax). Credits are more valuable. Earned Income Tax Credit (EITC) is common credit.
Why It Matters
Not understanding the difference costs money. A $1,000 tax credit is worth $240-370 depending on bracket. A $1,000 deduction is worth $240-370. Credits are always better. Some are refundable (you get money back).
Example
Owe $5,000 in taxes. $1,000 deduction in 24% bracket reduces it to $4,760. $1,000 credit reduces it directly to $4,000. Credit saves $240 more. If credit is refundable, you get the full $1,000.