Question

What are tax credits?

Your adjustments, deductions, and exemptions reduce your taxable income. Tax credits, on the other hand, are directly applied to the tax that you pay. You may take tax credits regardless of whether you itemize deductions. Many credits are limited, based on income levels, so the amount of a credit may be reduced for high-income taxpayers.

The following statement refers to refundable or nonrefundable tax credits.

A tax credit that reduces your income tax liability to below zero with the excess being returned to you is ________________________.
refundable or nonrefundable. (I put refundable)

Page 2 of tax Form 1040 lists the available tax credits. The nonrefundable tax credits are listed in the Tax and Credits section of the form. Select the tax credits. Check all that apply. Check all that apply. Check all that apply. Check all that apply.

__Residential energy tax credit
__Foreign tax credit
__Education credits (lifetime learning credit)
__Casualty and theft loss tax credit
__Medical and dental tax credit

The Payments section of Page 2 of tax Form 1040 lists refundable tax credits. Select these tax credits from the list. Check all that apply. Check all that apply. Check all that apply. Check all that apply. Check all that apply. Check all that apply.

__American opportunity tax Credit
__Earned income tax credit
__Student loan interest tax credit
__Health savings account tax credit
__Social Security contributions tax credit

Answer 1

1. Tax credits are an incentive that let the taxpayer substract his tax liability with a certain amount of credit detection.

Tax credits are promoted by various government to motivate a particular behaviour like purchasing of first home or Insurance of first child.

Tax credits are distinct from tax exemptions and tax deductions as tax credit directly reduces the total amount of tax which has been made by the person so it is a form of direct relief to the person.