What is an income tax credit?

An income tax credit is a specific amount that reduces the total income tax owed to the government. It functions to lower the tax burden for eligible taxpayers, particularly those with lower incomes. When low-income families qualify for a tax credit, they can subtract this amount directly from their tax liability, which effectively decreases the overall amount they need to pay.

This mechanism is designed to provide financial relief and support to families who may struggle to meet their tax obligations. It is distinct from deductions, which reduce taxable income rather than directly lowering the tax owed. In contrast to the other options, which either misdefine the credit or focus on non-tax-related benefits, this characterization correctly aligns with the operational nature of income tax credits as a financial benefit designed to aid low-income taxpayers.