Tax credits provide you with money to go toward paying back your owed taxes.
For example:
Assume that a taxpayer has an income of $100,000 and is unmarried. If they’re filing taxes in
2019 for the 2018 year, they would be placed in the 24% bracket. According to NerdWallet’s
federal income tax bracket table, they would owe $14,089.50 plus 24% of their income
amount over $82,500, which equates to $4,200. Adding that up, the individual would
roughly owe $18,289.50 for their 2018 taxes.
If the individual had a 10% tax credit, they would still be in the 24% tax bracket and still owe
$18,289.50. However, they’d be given a $10,000 credit, bringing the end payment down to
$8,289.50.