Tax Credits

• A tax credit differs from a tax deduction in that tax deductions apply to taxable income. When a person applies to a tax deduction to his income, it lessens the total amount of income that the person must pay taxes on. Whatever deductions a person applies, he will not receive this money back from the government in the form of a refund. However, a person may be able to receive part of all of a tax credit back.
  
  

Refundable Credits

• Tax credits are not all the same. These credits may be issued by the federal government or by the state government for various reasons. Some of these credits are refundable, meaning that if the amount of credits the person receives exceeds the amount he must pay in taxes, then he will receive some of this money back in the form of cash. However, not all tax credits are refundable.
  
  

Low-Income Taxpayers

• A person is far more likely to get a tax refund from a tax credit provided to him if he only makes a small amount of money. This is because people who make a lot of money who receive tax credits will generally apply all of their tax credits to their tax burden. By contrast, a person who pays no taxes---meaning, who makes no money---may receive a large amount of refundable credits.
  
  

Filing Taxes

• A person is only eligible for a tax credit if he files his taxes. This does not necessarily mean that the person must pay taxes, only that he gives the government an accounting of his tax status. A person who does not pay taxes, but who is legally required to will not receive a tax credit. This money will instead likely be applied to the tax scofflaw's unpaid tax burden.