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?
How do state earned income tax credits work? Q.How do state earned income tax credits work? A.The federal earned income tax credit (EITC) provides a refundable credit to taxpayers based on their income and family circumstances (such as marital status and number of children). In 2023, 31 states and the District of Columbia additionally offer a state EITC. Most state credits are calculated as a percentage of the federal credit. Read more about How do state earned income tax credits work?
Do all people eligible for the EITC participate? Q.Do all people eligible for the EITC participate? A.The IRS and Census Bureau estimate that almost 80 percent of workers eligible for the earned income tax credit (EITC) claim it. Because people eligible for higher credits are more likely to claim the credit than those eligible for lower credits, about 85 percent of potential benefits are claimed each year. Read more about Do all people eligible for the EITC participate?