Civic · 6 pages · 12 min
How a deduction differs from a credit
A deduction shrinks the amount being taxed, while a credit subtracts from the tax after that amount is set.
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From the opening
A deduction is an amount the statute lets someone subtract while computing the tax base, so less of that base is left for the rate to meet. A credit is an amount subtracted from the tax itself after the rate has already been applied, which is a later and different step in the same computation. The opening covers deductions act before the rate, credits act on the tax, and exclusions never enter the base.
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Inside
- Deductions act before the rate
- Credits act on the tax
- Exclusions never enter the base
- Refundable credits can pass zero
- Where the idea stops applying
- A distinction worth keeping
Sources
- Tax deduction from the base
- Tax credit against liability