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Tax Credit vs Deduction Calculator

Compare a tax credit with a tax deduction at your marginal tax rate: how much tax each saves, which is worth more, the deduction needed to match the credit and whether the credit is refundable.

Tax deduction amount

Tax credit amount

Your marginal tax rate

Tax you owe before either

Is the credit refundable?

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How it works

tax saved by a deduction = deduction × marginal rate (at most the tax owed) · tax saved by a credit = credit (non-refundable: at most the tax owed) · deduction worth the same as a credit = credit ÷ marginal rate

A deduction lowers the income your tax is calculated on, so it saves you the deduction times your marginal tax rate. A credit is subtracted directly from the tax itself, so each unit of credit saves one unit of tax. That makes a credit worth far more than a deduction of the same size: at a 22% rate, a 500 credit is worth as much as a 2,272.73 deduction. A non-refundable credit can only bring your tax down to zero; a refundable one is paid out even if it is larger than the tax you owe.

Worked example

At a 22% marginal rate, a $2,000 deduction saves $440.00 of tax, while a non-refundable $500 credit saves the full $500.00 because you owe $3,000. The better option is the tax credit, with an extra saving of $60.00. You would need a $2,272.73 deduction to match the credit.

Sources: IRS — Credits and deductions for individuals · Tax Policy Center — What is the difference between refundable and nonrefundable credits?

Frequently asked questions

What is the difference between a tax credit and a deduction?

A deduction reduces taxable income; a credit reduces the tax bill directly. A 1,000 deduction at a 22% rate saves 220, while a 1,000 credit saves 1,000.

Is a tax credit always better than a deduction?

For the same amount, yes. But a large deduction can beat a small credit: compare deduction × marginal rate with the credit, which is exactly what this calculator does.

What is a refundable tax credit?

One that is paid to you even if it exceeds the tax you owe. A non-refundable credit stops at zero tax, so any excess is lost (or carried forward if the law allows).

Why use the marginal rate and not the average rate?

A deduction removes income from the top of your income, which is taxed at your highest (marginal) rate. If the deduction pushes you into a lower bracket, the saving is a little smaller.

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Estimate for planning only — not tax, legal or financial advice. Tax rates, thresholds and rules depend on your country and situation; confirm with your tax authority or a qualified adviser before you rely on the figures.