How Deductions Work
Deductions reduce your taxable income. On $75,000 gross income with $15,000 standard deduction: taxable income = $60,000. A $3,000 additional deduction reduces taxable income to $57,000. Savings: $3,000 × 22% marginal rate = $660. The savings depend entirely on your marginal rate.
How Tax Credits Work
Credits reduce your tax bill directly — after the tax is calculated. A $1,000 child tax credit reduces your tax bill from $8,500 to $7,500 regardless of your tax bracket. A $2,000 education credit reduces the bill by $2,000. Credits are always worth exactly their face value.
Deduction vs. credit comparison by tax bracket — $1,000 of each type
| Item | Deduction ($1,000) | Credit ($1,000) | Advantage |
|---|---|---|---|
| 12% bracket | $120 savings | $1,000 savings | Credit saves $880 more |
| 22% bracket | $220 savings | $1,000 savings | Credit saves $780 more |
| 24% bracket | $240 savings | $1,000 savings | Credit saves $760 more |
| 32% bracket | $320 savings | $1,000 savings | Credit saves $680 more |
| 37% bracket | $370 savings | $1,000 savings | Credit saves $630 more |
Major Tax Credits for 2025
Major federal tax credits for 2025
| Tax Credit | Maximum Value | Who Qualifies | Refundable? |
|---|---|---|---|
| Child Tax Credit | $2,000/child (up to $1,700 refundable) | Children under 17 | Partially |
| Child and Dependent Care Credit | 20–35% of up to $6,000 | Working parents with care expenses | No |
| Earned Income Tax Credit (EITC) | Up to $7,830 (3+ kids) | Lower-to-moderate income workers | Yes |
| American Opportunity Credit | Up to $2,500 | First 4 years of college | 25% refundable |
| Lifetime Learning Credit | Up to $2,000 (20% of $10K) | Education expenses at any level | No |
| Retirement Savings Credit (Saver’s Credit) | 10–50% of contribution, max $1,000 | Lower-income savers | No |
| EV Tax Credit | Up to $7,500 | New EV purchase, income limits | No |
The Saver’s Credit rewards retirement saving for lower-income taxpayers. At $30,000 income (single): contribute $2,000 to IRA or 401k and receive a 50% credit = $1,000 in federal taxes. Combined with the deduction (if Traditional), the actual after-tax cost of that $2,000 IRA contribution is about $680 ($2,000 - $660 deduction savings - $1,000 credit + some rounding) — you save $2,000 for retirement at a net cost of $680.
See Your Credits and Deductions
Enter your income and life situation — identify every credit and deduction you’re entitled to claim.