There are big differences between a tax deduction and a tax credit, but it is easy to get the two confused.
A tax deduction reduces taxable income and saves tax on the marginal tax bracket. For example, a $100 deduction will save you $30 if you are in 30 per cent bracket, but will only save $22 if you are in 22 per cent bracket.
A tax credit, on the other hand, reduces tax owing. Tax credits provide the same dollar benefit to each taxpayer because the credit is subtracted directly from the individual’s tax payable.
