Deduction, tax reduction, tax credit: what differences?

Verified 01 January 2024 - Legal and Administrative Information Directorate (Prime Minister)

Multiple devices may reduce the amount of your tax on income.

Video - Do you know the differences between tax reduction, tax credit and tax deduction?

Vidéo - Taxes - Tax Benefits
Credits : Public Service (DILA)

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Taxes

Tax reduction, tax credit, tax deduction, what's the difference?

 

Do you know that there are several ways to reduce your tax bill?

Examples include a tax reduction for donations to an association, a tax credit for homework, or a tax deduction for child support payments. 

 

In concrete terms, what are the differences between these three tax advantages?

Don't panic, we'll explain!

 

First, what is a tax deduction?

 

It's a withdrawal from your taxable income.

Let's take an example. You have an income of €10,000 and a tax deduction of €1,000. You will only be taxed on €9,000.

The deduction can be made on your total income.

For example, the deduction of support payments you make to an adult child.

The deduction can also be made on a class of income.

For example, your business expenses are deducted from your salaries.

 

The tax deduction should not be confused with the tax reduction.

 

The tax reduction is an amount deducted from your tax.

For example, you made a donation to an association that entitles you to a tax reduction of €700. If your tax is €1,500, then you will only pay €800.

But if you're tax-free, you can't take advantage of it.

And if you’re low-taxed, you get only a portion of the rebate.

For example, if you are entitled to a tax reduction of €700, but you owe €500 in taxes, the €200 surplus is “lost.”

 

What is a tax credit?

 

It's also deducted from your tax.

If the amount of the tax credit exceeds the amount of your tax, the surplus is refunded to you.

However, if you do not pay tax, the tax services will refund the amount of your tax credit.

For example, suppose you are entitled to a tax credit of €700 for your child care expenses. If you owe €500 in taxes, the tax services will refund the €200 surplus.

Only one exception, sums less than €8 are not refunded.

 

In summary

 

+ A tax deduction is an amount withdrawn from your taxable income.

+ A tax reduction is an amount deducted from your taxes (if you pay taxes).

+ A tax credit is also deducted from your tax, or refunded if it exceeds your tax (or you don’t pay any).

One deduction is an amount that is withdrawn of your taxable income.

Example :

You have an income of €10,000 and a tax deduction of €1,000. You will then be taxable only on €9,000.

The deduction may be made on one of the following revenues :

One tax reduction is a sum deducted of the amount of your tax (for example, tax reduction for donations to general interest organizations).

It applies only if you have to pay taxes.

Example :

You have donated to an association that entitles you to a tax reduction of €700.

If your tax is €1,500Well, then you'll only pay €800.

If you don't pay income tax, you can't benefit from the tax cut.

If you pay little, you can benefit only of a party the tax cut.

Example :

If you are entitled to a tax reduction of €700, but that you must €500 of tax, the surplus of €200 is "lost".

One tax credit is also an amount subtracted of the amount of your tax (for example, child care expense tax credit).

Unlike the tax cut, the tax credit is refunded in whole or in part in the following cases:

Example :

You are entitled to a tax credit €700 for your child care expenses. If you only need €500 tax services will then reimburse you for the surplus of €200.

FYI  

sums less than €8 are not reimbursed.

Who can help me?

Find who can answer your questions in your region

  • For general information

    Tax Information Service

    By telephone:

    0809 401 401

    Monday to Friday from 8:30 am to 7 pm, excluding public holidays.

    Free service + call price