Tax Credits


In this lesson, you’ll learn how tax credits can save you money on your taxes. There will be a short quiz at the end of this lesson to make sure you understand the material before moving onto the next lesson.

A tax credit is an amount of money you can directly subtract from the taxes you owe.

Types of tax credits include:

  • Nonrefundable: won’t be refunded if the taxes you owe would drop below zero
  • Partially refundable: Will be partially refunded if tax you owe would drop below zero
  • Fully refundable: Will be refunded even if that would drop your taxes below zero

Tax Credit Example

Jack and Jill owe $13,234 in federal income taxes this year. Jack learns that they can claim a $200 federal tax credit because they bought an energy efficient furnace for $2000. After claiming this tax credit, Jack and Jill now owe $13,034 rather than $13,234.