Margin notes
- The IRS describes a deduction as an amount subtracted from income that lowers taxable income.
- For 2026, the 12% bracket for single filers covers taxable income over $12,400 up to $50,400.
- The Additional Child Tax Credit, the refundable part of the CTC, is worth up to $1,700 per qualifying child for 2026.
Two words cause more confusion on a tax return than any others: deduction and credit. Both lower what you owe, but by very different amounts. Knowing which is which tells you where to spend your attention.
The one-sentence difference
The IRS defines a deduction as an amount subtracted from your income when you file; deductions lower your taxable income and so lower your tax. A credit is subtracted from the tax itself. The IRS describes the Child Tax Credit, for example, as a credit that allows people with a qualifying child to reduce their tax liability.
A worked example
Take a single filer whose taxable income for 2026 falls in the 12% bracket. Under the IRS figures for 2026, that bracket covers taxable income over $12,400 and up to $50,400 for single filers. Compare a $1,000 deduction with a $1,000 credit:
| $1,000 deduction | $1,000 credit | |
|---|---|---|
| What it reduces | Taxable income | Tax owed |
| Tax saved at 12% | $120 | $1,000 |
| Tax saved at 22% | $220 | $1,000 |
| Tax saved at 37% | $370 | $1,000 |
The deduction is worth your top tax rate times its size. The credit is worth its face value whatever your bracket. That is why credits matter so much for ordinary earners: a family in the 12% bracket gets the full value of a credit, but only 12 cents on the dollar from a deduction. The flip side explains part of how How the Wealthy Reduce Taxes Legally, and the Versions You Can Use: deductions are worth more to people in higher brackets.
Credits also have their own income limits, which work in the opposite direction. Many shrink or disappear as income rises: the full Child Tax Credit is available up to $200,000 of income ($400,000 joint), and the Lifetime Learning Credit phases out between $80,000 and $90,000 of modified adjusted gross income ($160,000 to $180,000 joint). Before counting on a credit, check where your income sits against its phase-out range.
The 2026 brackets in brief
| Rate | Single: taxable income over | Married filing jointly: over |
|---|---|---|
| 10% | $0 | $0 |
| 12% | $12,400 | $24,800 |
| 22% | $50,400 | $100,800 |
| 24% | $105,700 | $211,400 |
| 32% | $201,775 | $403,550 |
| 35% | $256,225 | $512,450 |
| 37% | $640,600 | $768,700 |
These are marginal rates: each rate applies only to the slice of income inside its band. A raise that moves you into the 22% band does not raise the tax on the income below it.
Deductions: standard or itemized
Most people take the standard deduction, a flat amount set by filing status. For 2026 it is $16,100 for single filers and married people filing separately, $32,200 for married couples filing jointly and $24,150 for heads of household. You can itemize instead if your allowable itemized deductions are larger. That choice is covered in Standard vs Itemized Deductions: How to Choose for 2026.
Some deductions are available whether or not you itemize. These are often called above-the-line deductions or adjustments to income. IRS examples include contributions to a health savings account, which you can deduct even if you do not itemize, half of self-employment tax and student loan interest.
New deductions from the 2025 tax law
The IRS lists several new deductions available to both itemizers and non-itemizers, each with income phase-outs and specific rules:
- An additional $6,000 deduction for people 65 and older, for 2025 through 2028, phasing out above $75,000 of modified adjusted gross income ($150,000 joint).
- Up to $25,000 for qualified tips.
- Up to $12,500 for qualified overtime pay ($25,000 joint).
- Up to $10,000 of interest on a qualified passenger vehicle loan.
- From 2026, non-itemizers can deduct up to $1,000 ($2,000 joint) of cash gifts to certain qualified charities.
Credits: refundable or not
Credits come in two kinds. A non-refundable credit can reduce your tax to zero but no further. A refundable credit can pay you the excess as a refund. Some credits are part of each. The Child Tax Credit is worth up to $2,200 per qualifying child for 2026, and its refundable part, the Additional Child Tax Credit, is worth up to $1,700 per child for families with little or no income tax, provided they have at least $2,500 of earned income. The American Opportunity education credit is 40% refundable. The Earned Income Tax Credit is refundable.
Tip: If you have little or no tax liability, refundable credits are the ones that put money in your pocket. Low-income workers who do not normally file may still be owed a refund through these credits, the IRS notes.
Where to look first
- Families: Tax Credits for Families in 2026: Child, EITC, Child Care and More.
- Students and parents of students: Education Tax Credits: The American Opportunity and Lifetime Learning Credits.
- Homeowners: Tax Breaks for Homeowners: Mortgage Interest, Property Tax and the Home Sale Exclusion.
- Self-employed: Self-Employed Tax Deductions: What Freelancers and Side Businesses Can Claim.
The IRS Interactive Tax Assistant on IRS.gov can check eligibility for many credits and deductions. For anything beyond the basics, a qualified tax professional can tell you which apply to your return.