Tax Credit

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Definition of a Tax Credit:

A tax credit is a direct deduction of a tax bill; a tax credit is designed to reward businesses for behaviors that help their employees, community, or the economy.

Detailed Explanation:

Governments may provide a tax credit to assist certain businesses. A tax credit is a direct deduction of a tax bill. Its intent is to reward businesses for behaviors that help their employees, community, or economy. Assume a business owes $100,000 in taxes in a specific year. Also, assume the business makes several investments that year that carried a tax credit of $10,000. The business would owe only $90,000 in taxes. (The $100,000 amount owed before the credit less the $10,000 tax credit.) Think of a tax credit as a negative tax, so a credit would reduce costs and result in a rightward shift in the supply curve. 


Dig Deeper With These Free Lessons:

Changes in Supply - When Producer Costs Change
Fiscal Policy - Managing an Economy by Taxing and Spending
Supply - The Producer's Perspective
Supply and Demand - Who Pays an Excise Tax

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