Tax Credit vs Deduction
Definition
A deduction reduces taxable income, so its value depends on the tax rate; a credit reduces the tax bill directly, dollar for dollar. Credits are generally worth more than deductions of the same amount.
Related Terms in US Tax
Form 1040
The main US individual income-tax return, on which taxpayers report income, claim deductions and credits, and calculate the tax owed or refund due for the year.
Form 1120
The US federal income-tax return filed by C corporations to report income, deductions and the corporate tax owed. S corporations instead file Form 1120-S.
Form W-9
The US form a business requests from a contractor or vendor to collect their taxpayer identification number and certification, so the business can correctly report payments on a 1099 and avoid backup withholding.
Backup Withholding
A requirement to withhold a flat percentage of certain US payments and remit it to the IRS when a payee has not supplied a valid taxpayer identification number or is otherwise flagged. It ensures tax is collected despite missing details.
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