Tax credits lower your overall tax liability, which means you may owe less or receive a larger refund. These are used by governments to help taxpayers cover expenses or as incentives for certain actions, such as driving an electric vehicle.
Tax credits are often thought to be more advantageous than tax deductions because they provide a dollar-for-dollar reduction. Tax reform in 2023 is projected to result in lesser tax refunds this year. According to IRS data, the average return this year is $3,079, which is 11% less than the previous year’s average of $3,473.