Credits are different from deductions. Credits are more valuable because they are dollar-for-dollar reductions in your taxable liability, whereas deductions only reduce taxable income. Credits are either refundable (paid to the taxpayer even if the amount of the credits exceeds the tax liability) or non-refundable. Refundable credits include reductions for earned income, taxes withheld on wages, and estimated income tax payments. Non-refundable credits include child tax, child and dependent care, elderly and disabled, adoption, hope learning, and lifetime learning.  Many of these credits are phased out for taxpayers in higher income brackets.

The Child Tax Credit is given for each child of the household under seventeen years old at the end of the year. A qualifying child is one whom the taxpayer can claim as a dependent. This credit is given in addition to the exemption claimed for the child, and it can even become a tax refund for low-income families, or a refundable credit. However, the Child Tax Credit begins to phase out after the taxpayer's income exceeds a specific amount.  The amount phased out depends on the number of credits—it is not a percentage phase out.

Education tax credits include the Hope Scholarship Tax Credit and the Lifetime Learning Credit. The Hope Scholarship Tax Credit gives parents a 100 percent tax credit for the first $1,000 paid for each of the first two years of college and a 50 percent tax credit on the next $1,000 for the first two years. The result is a credit of up to $1,500 per year for two years. Qualifying expenses include tuition and books—but not room and board—at an accredited vocational school, college, or university.

During the third and fourth years of college or graduate school, the Lifetime Learning Credit can be applied to offset 20 percent of the first $10,000 for tuition and related expenses for all eligible students in the family (up to $2,000).

Another important credit is the Adoption Credit, which allows for a credit of up to $10,000 for the qualifying cost of adopting a child under the age of eighteen.

Taxpayers may be eligible for additional credits if they are disabled, over sixty-five and have a low income, pay taxes in other countries, or overpay Social Security taxes because they work more than one job.