Which of the following statements about congressional tax credits is correct?

• A. Tax credits directly reduce the amount of tax owed by taxpayers.
• B. Tax credits are only available to corporations, not individuals.
• C. Tax credits increase taxable income for individuals.
• D. Tax credits must be repaid to the government in the following tax year.

Answer: (A)

Verified step by step guidance

1. Understand the concept of a tax credit: A tax credit is an amount that taxpayers can subtract directly from the taxes they owe to the government, reducing their overall tax liability.
2. Compare tax credits to tax deductions: Unlike deductions, which reduce taxable income, tax credits reduce the actual tax owed dollar-for-dollar.
3. Evaluate the statements given: Identify which statement correctly describes the nature and effect of tax credits based on their definition.
4. Recall that tax credits are generally available to individuals as well as corporations, so the statement limiting them to corporations is incorrect.
5. Recognize that tax credits do not increase taxable income nor do they require repayment in the following year; they simply reduce the tax owed in the current tax period.