Within the United States, Canadian, Australian and United Kingdom tax systems, a tax credit is an item which is treated as a payment already made toward taxes owed. It has the effect of reducing tax liability dollar-for-dollar, in contrast to a tax deduction, tax allowance or tax relief which reduce taxable income, not tax liability.

Tax credits may be characterized as either refundable or non-refundable, or equivalently non-wastable or wastable. Refundable or non-wastable tax credits can reduce the tax owed below zero, and result in a net payment to the taxpayer beyond their own payments into the tax system, appearing to be a moderate form of negative income tax. Example of a refundable tax credit include the earned income tax credit and the additional child tax credit in the US, and the working tax credits or child tax credits in the UK.

A non-refundable or wastable tax credit cannot reduce the tax owed below zero, and hence cannot cause a taxpayer to receive a refund in excess of their payments into the tax system. Some example of non-refundable tax credits tax credits are the Hope and Lifetime Learning educational tax credits in the US or the former childrens tax credit in the UK.