A tax credit is a benefit that reduces the amount of tax you owe to the government. Unlike a tax deduction, which lowers your taxable income, a tax credit directly decreases your 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 families, encouraging education, or promoting energy efficiency. Common examples include the Child Tax Credit and the Earned Income Tax Credit. These credits help individuals and families save money and can make a significant difference in their financial situation.