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Tax Credit

A reduction in the amount of tax owed. Unlike a tax deduction, which reduces the amount of income subject to tax, a tax credit directly reduces the tax bill dollar for dollar.

Refundable Tax Credit

A type of tax credit that can result in a tax refund for the taxpayer, even if the amount of the credit is more than the total tax owed. If the credit exceeds the tax liability, the difference is paid out to the taxpayer.

Adjusted Gross Income (AGI)

A calculation used on federal income tax returns that considers your gross income and then subtracts certain approved expenses, such as contributions to a traditional IRA or student loan interest.

Applicable Percentage

The specific percentage of qualified care expenses that can be claimed as a tax credit, which varies based on a taxpayer's income level.

Internal Revenue Code

The body of law that encompasses all federal tax laws, rules, and regulations in the United States, administered by the Internal Revenue Service (IRS).

Dependent Care

Care provided for a qualifying individual (such as a child under age 13 or a spouse or other dependent who is physically or mentally unable to care for themselves) to allow the taxpayer to work or look for work.