A tax credit is an amount of money that taxpayers can subtract directly from the taxes they owe to the government. Unlike deductions, which reduce taxable income, tax credits lower the actual tax bill. For example, if you owe $1,000 in taxes and have a $200 tax credit, you only need to pay $800. Tax credits can be available for various reasons, such as supporting low-income families, encouraging education, or promoting energy efficiency. Some common types of tax credits include the Earned Income Tax Credit and the Child Tax Credit. These credits help reduce the financial burden on individuals and families.