A tax credit is a specific amount of money that a taxpayer can subtract directly from the total tax they owe, reducing their tax liability dollar for dollar.
Unlike deductions, which lower taxable income, tax credits directly lower the final tax bill. Governments often offer tax credits to encourage behaviours that benefit society or the economy, such as adopting energy-efficient practices, paying for education, buying a first home, or covering child care costs.
Some tax credits are nonrefundable, meaning they can reduce your tax bill to zero but not result in a refund, while others are refundable and can lead to a refund even if no tax is owed.