Definition of tax credit
- Families with children in college will receive a tax credit this year.
: a charge usually of money imposed by authority on persons or property for public purposes
: a sum levied on members of an organization to defray expenses
: a heavy demand
: to levy a tax on
: to make onerous and rigorous demands on
: charge, accuse
: reliance on the truth or reality of something
: the balance in a person's favor in an account
: an amount or sum placed at a person's disposal by a bank
: to trust in the truth of : believe
: to supply goods on credit to
: to bring credit or honor upon
For example, the Internal Revenue Service’s child tax credit allows taxpayers to reduce their federal income taxes by a fixed amount for each qualifying child. A qualifying child is a dependent under 17 who is a U.S. citizen or a resident alien. The child must be the taxpayer’s son, daughter, adopted child, grandchild, stepchild, eligible foster child, sibling, stepsibling or descendant. The child must live with the taxpayer for more than one-half of the tax year. In many cases, divorced parents decide which parent receives the child credit.
Tax credits obviously lower a person’s tax bill, which is why taxpayers invest time in seeking out credits and structuring transactions to maximize those credits. There are several different types of tax credits, though some are only available to people in certain income ranges (typically under $100,000-$150,000) and most are only available to people in certain circumstances or companies in certain industries.
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