How does a tax credit differ from a tax deduction? Can I claim both?
A. A tax credit is significantly more beneficial than a deduction. A credit reduces your Arizona taxes dollar-for-dollar while a deduction reduces the taxable income upon which taxes are calculated. If you claim the tax credit on your Arizona return, you cannot also claim a deduction on your Arizona return. However, you may be able to claim the payment as an itemized deduction on your Federal income tax return, thus lowering the amount of Federal tax paid.
