What’s the difference between a tax credit and a tax deduction?
A tax credit applies directly against the taxpayers’ liability. A tax deduction applies against a taxpayer’s income, lowering the adjusted gross income and possibly moving the taxpayer to a lower tax bracket. Tax credits have a greater benefit to a taxpayer than a tax deduction. There are two categories of tax credits: Refundable and Non-Refundable. Residential Energy Tax Credits for 2009 and 2010 are considered to be Non-Refundable tax credits under the IRS regulations, just as the previous tax credits were for 2006 and 2007.
