Legal Definitions - child- and dependent-care tax credit

The child- and dependent-care tax credit is a type of tax credit that is subtracted directly from one's total tax liability, dollar for dollar, as opposed to a deduction from gross income. This tax credit is available to a person who is employed full-time and who maintains a household for a dependent child or a disabled spouse or dependent.

• Earned-income credit: A refundable federal tax credit on the earned income of a low-income worker with dependent children. The credit is paid to the taxpayer even if it exceeds the total tax liability.
• Foreign tax credit: A tax credit against U.S. income taxes for a taxpayer who earns income overseas and has paid foreign taxes on that income.
• Investment tax credit: A tax credit intended to stimulate business investment in capital goods by allowing a percentage of the purchase price as a credit against the taxpayer's income taxes.
• Unified estate-and-gift tax credit: A tax credit applied against the federal unified transfer tax.

These examples illustrate different types of tax credits that are available to taxpayers under certain circumstances. For example, the earned-income credit is available to low-income workers with dependent children, while the foreign tax credit is available to taxpayers who earn income overseas and pay foreign taxes on that income. The investment tax credit is intended to stimulate business investment, while the unified estate-and-gift tax credit is applied against the federal unified transfer tax.