Tax Credits or Tax Deductions: Which Will Save You More?

Here’s what you need to know about the differences between tax deductions and tax credits and how they can help you reduce your 2025 tax bill and maximize your tax refund. How a Tax Deduction Affects Your RefundHow a tax deduction affects your refund depends on your tax bracket because a tax deduction only reduces your taxable income. Tax credits fall into three categories: refundable credits, partially refundable credits and nonrefundable credits. Popular nonrefundable tax credits include:Child and dependent care creditLifetime learning creditCredit for other dependentsSavers creditEnergy efficient home improvement creditToday's Top OffersWho Benefits Most From Tax Credits and Tax Deductions? When examining the benefits of tax deductions vs. tax credits, tax credits provide the most benefit to lower- and middle-income taxpayers.