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

A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.

A tax deduction is substracted from the amount of income that is taxed. Using the same example, assume the taxpayers is in the 15% tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer;s tax liability would be reduction by $1,125 (15% of $7,500), or lowered from $7,500 to $6,375