The information in this article is up to date for tax year 2023 (returns filed in 2024).
Tax credits and tax deductions are arguably the best part of preparing your tax return. They reduce your tax bill and help determine how much your tax liability is–either directly or indirectly.
So what exactly is the difference?
- Tax deductions: Tax deductions reduce how much of your income is subject to tax (i.e., your taxable income), indirectly lowering your tax bill.
- Tax credits: Tax credits directly reduce your tax bill dollar for dollar.
Below we’ll cover the main differences between tax credits and deductions. Plus, review some of the most common credits and deductions available to taxpayers.
What is a Tax Credit?
A tax credit is a dollar-for-dollar reduction of your tax liability. This means a $1,000 tax credit would reduce a $5,000 tax bill to $4,000. Tax credits are typically more valuable than tax deductions as they usually result in bigger tax savings—especially for lower-income taxpayers.
There are two types of tax credits: Refundable and non-refundable.
Refundable Tax Credits
If you have a refundable credit, that means if the credit reduces your tax liability to zero and there’s still credit left over, you can claim that money on your tax refund. For example, let’s say your tax bill is $1,000, and you have a $1,500 refundable tax credit. The credit would zero out your tax liability and leave you with a $500 tax refund.
Examples of refundable tax credits:
- Earned Income Tax Credit (EITC)
- Additional Child Tax Credit (ACTC)
Non-refundable Tax Credits
If you have a non-refundable tax credit, any money left over after applying the credit does not go to a refund. So, if you have that same $1,000 tax bill and a $1,500 non-refundable tax credit, your tax liability would be zero, but you would not receive the excess $500.
Examples of non-refundable tax credits:
- Adoption Credit
- Lifetime Learning Credit
- Foreign Tax Credit
- Elderly and Disabled Credit
Common 2023 Tax Credits
Here are the most common 2023 tax credits:
- Child Tax Credit
- Dependent Care Credit
- Earned Income Tax Credit
- American Opportunity Credit
- Lifetime Learning Credit
- Energy Efficient Home Improvement Credit
What is a Tax Deduction?
A tax deduction reduces your taxable income. So, for example, if your income for 2023 was $100,000 and you had a $30,000 deduction, you would only be taxed on $70,000 for the year.
Unlike some tax credits, tax deductions are non-refundable. You can claim either the standard tax deduction or choose to itemize your deductions.
Standard Deduction vs. Itemized Deduction
The standard deduction is the total amount you can deduct from your adjusted gross income (AGI) for the year. Even if you don’t qualify for any other credits or deductions, you can usually apply the standard deduction to your tax return. Claiming the standard deduction is easier since you don’t have to track your expenses or do the extra calculations on an itemized deduction.
An estimated 90% of taxpayers claim the standard deduction.
However, taxpayers with large expenses throughout the year (such as medical costs or business expenses) may be able to reduce their taxable income by a larger amount when itemizing.
ezTaxReturn can help you determine if you should take the standard deduction or itemized deductions to receive the biggest refund.
What is the 2023 Standard Tax Deduction?
The standard deduction you can claim depends on your filing status. Here are the standard tax deductions for the tax year 2023:
| Filing Status | 2023 Standard Tax Deduction |
| Single | $13,850 |
| Married, filing separately | $13,850 |
| Married, filing jointly | $27,700 |
| Qualifying surviving spouse | $27,700 |
| Head of household | $20,800 |
Note: If you are over age 65 and/or blind, you can claim an additional $1,500 or more on your standard deduction, depending on your filing status.
Common Tax Deductions
Here are some common 2023 tax deductions:
- Student loan interest payments
- Work-related education expenses
- Health savings account (HSA) and other health plans
- Retirement contributions
- Charitable giving deductions
- State and local tax deductions
- Home office deduction
- Mortgage interest deduction
Lower Your Tax Bill with ezTaxReturn
With so many credits and deductions available, it can be hard to know what you qualify for. Make sure you’re getting the biggest refund possible with ezTaxReturn. We take the guesswork out of the filing process and identifies which credits and deductions you’re eligible for.
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The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.
