A tax credit is a benefit that reduces the amount of tax you owe to the government. Unlike deductions, which lower your taxable income, tax credits directly decrease your tax bill. For example, if you owe $1,000 in taxes and have a $200 tax credit, you only need to pay $800. There are various types of tax credits, including those for education, energy efficiency, and low-income families. Some credits are refundable, meaning if the credit exceeds your tax liability, you can receive the difference as a refund. Common examples include the Earned Income Tax Credit and the Child Tax Credit.