A person's annual income is $40,000. She subtracts $2,000 for donations to charity. If she is also given a $3,000 tax credit, her total income would be $38,000.
Tax credits are financial incentives that let some taxpayers deduct their accumulated credits from the total amount they repose on the state.
It can also be called as a “discount” that is offered by the state in some circumstances, or a credit given in recognition of prior tax payments. It is not considered as a part of person's income.
The person's gross income would be $38,000 ($40,000 – $2000), here, the Gross Income does not include the deduction, this is considered in the Net taxable income.
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