Definition
An amount subtracted directly from the tax you owe; a refundable credit can also be paid to you if it is larger than your tax.
What it means
A tax credit lowers your tax dollar for dollar, which makes it more valuable than a deduction of the same size, since a deduction only lowers taxable income. Nonrefundable credits can reduce your tax to zero but not below. Refundable credits, such as the earned income tax credit and the refundable part of the child tax credit, can produce a refund even if you owe no tax. Common credits include the child tax credit, credit for other dependents, child and dependent care credit, education credits, the saver's credit and the premium tax credit for marketplace health insurance. Each has its own eligibility rules, income limits and identification number rules. The IRS lists credits and deductions for individuals and how to claim each one.
Example
A $1,000 tax credit cuts your tax by $1,000. A $1,000 deduction for someone in the 12% bracket cuts tax by only about $120.
Illustrative numbers only. Your situation will differ.