A reduction of tax liability for Federal income tax purposes. Several national health insurance proposals allow businesses and/or individuals to reduce their taxes dollar for dollar for certain defined medical expenses. The effect of using a tax credit approach rather than a tax deduction is to give persons and businesses an equal benefit for each dollar expended on health care. A tax credit favors lower over higher income people while a tax deduction is worth more the higher the marginal tax rate.
An amount that can be subtracted from the tax owed by an individual. Some health care reform proposals include tax credits. These save the individual more money than would the same amount taken as a tax deduction. In some cases, the credit may only reduce the amount of tax owed; in other cases, the credit may actually be refunded to the taxpayer.