Per Diem Rates from the U.S. General Services Administration
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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").
What is a Tax Credit?
While a tax deduction reduces taxable income, a tax credit reduces your tax liability dollar for dollar. For example, if your adjusted gross income (AGI) was $50,000 and you had $10,000 in deductions, your taxable income would be $40,000. If your tax rate is 15%, your tax liability is $6,000 (15% x $40,000).
At a 15% tax rate your $10,000 deduction is worth $1,500 in tax savings (15% x $10,000). In other words, each $100 in deductions saved you $15 ($10,000/100 x $15 = $1,500).
However, if you qualified for a $2,000 tax credit, your $6,000 tax liability would be reduced to $4,000, a dollar for dollar reduction in taxes. To get a $2,000 reduction in your tax liability with a tax deduction instead of a tax credit, assuming a 15% tax rate, you would need a deduction of $13,333 ($13,333 x 15% = $2,000).
Two Kinds of Tax Credits
- Nonrefundable
- Refundable
Nonrefundable Tax Credits:
A non refundable tax credit reduces your tax liability dollar for dollar up to the amount of the tax liability.. You don't benefit from the amount by which the tax credit exceeds your tax liability. For example, a $2,000 nonrefundable tax credit reduces a $1,500 tax liability by $1,500, zeroing it out. You don't benefit from the $500 excess credit because it is not refundable.
Refundable Tax Credits:
Refundable tax credits are not limited to the amount of the tax liability. Using the previous example, the $500 excess credit would be refundable. The Earned Income Credit is an example of a refundable tax credit.