What are tax credits and how do they differ from tax deductions? Q.What are tax credits and how do they differ from tax deductions? A.Credits reduce taxes directly and do not depend on tax rates. Deductions reduce taxable income; their value thus depends on the taxpayer’s marginal tax rate, which rises with income. Read more about What are tax credits and how do they differ from tax deductions?
What is the earned income tax credit? Q.What is the earned income tax credit? A.The earned income tax credit subsidizes low-income working families. The credit equals a fixed percentage of earnings from the first dollar of earnings until the credit reaches its maximum. The maximum credit is paid until earnings reach a specified level, after which it declines with each additional dollar of income until no credit is available. Read more about What is the earned income tax credit?
How does the tax system subsidize child care expenses? Q.How does the tax system subsidize child care expenses? A.Working parents are eligible for two tax benefits to offset child care costs: the child and dependent care tax credit and the exclusion for employer-provided child care. The credit benefits only a small share of parents because relatively few have formal child care expenses that qualify for the credit. Read more about How does the tax system subsidize child care expenses?