I'm saying the latter. Exactly how is a deduction different from a credit.....honest question because I'm not seeing the difference? Both Credits and Deductions are designed to reduce one's taxable income and thereby lessen one's tax liability.
There is an enormous difference.
Deductions lower your adjusted gross income, that is the income that is subject to tax.
Credits on the other hand actually lower the amount of tax that you owe. Within credits there are non-refundable, and refundable credits. Non refundable credits can only lower the tax you owe to zero. Refundable credits like the additional child tax credit and earned income credit amount to the government giving you money. Oh and believe me the same people who abuse welfare and food stamps know how to abuse the tax code.
So if someone gets a refund by using deductions like the mortgage interest deduction, that is just the government giving the taxpayer their own money back. Whereas people who use a lot of credits and get back more than they had withheld are being given money from the government.
This post was edited on 1/4 at 6:51 am