Many times a person who does not have a CPA license may be confused about the different tax implications and verbiage. For example there is a different between a tax deduction and a tax credit. Often the two can be confusing or misunderstood.

The best way to remember the difference is that a credit is not a deduction and it can add to the overall refund of your tax payments. The credit is added to like you already paid that tax is the best way to differentiate the two. A deduction, on the other hand, is deducted from the overall taxable income. There are several different types of tax credits that can be applied in different circumstances.

Child Tax Credit: This is one of four basic types of credits that you may be qualified to take. If you have children, you can claim one thousand dollars for each child that is your own or a child that you provide the majority of costs for. This can include a niece, nephew or foster children. However, if your income is higher this credit will phase out. This phasing will be determined on the status of your filing and level of income within that status.

Child and Dependent Care Credit: This is the second classification of credit you may be eligible for. If you have a dependent under 13 years of age or dependents older and not able to care for themselves you may have expenses that are in relation to their care. To qualify you have to pass the IRS tests to qualify to take this credit. If you do, you can take up to thirty five percent of the credit in your taxes when you file each year.

Earned Income Credit: The third classification of tax credit is possible if you have an adjusted gross income that is less than a capped amount. The capped amount depends on your income level compared to your filing status. It also depends on whether you have any dependent children in your household that you are claiming. It is also dependent if you have investment income. If you do qualify, the amount of your refund can be considerably higher in rating equally several thousand dollars more.

Education Tax Credits: The last category of credit you may qualify for is education expenses. There are two different kinds of credits which are the Hope Credit and the Lifetime Learning Credit. A Hope credit can only be claimed for a period of two years per each student that is eligible and it does have a cap on it. If you are married, you cannot file this credit. The Lifetime credit applies to the first ten thousand dollars you pay for tuition and expenses each year. There is no limit on this type of credit as in the Hope credit.