To encourage low- to moderate-income workers to save for retirement, a tax credit called the Saver's Credit is available. Which statement about tax credits and tax deductions is true?

Question

Quizplus · Accepted Answer

Tax credits are more favorable than tax deductions because they reduce taxes owed on a dollar-for-dollar basis. In contrast, tax deductions reduce taxable income, which ultimately reduces the amount of tax owed, but not on a dollar-for-dollar basis. Therefore, option B is correct. Option A is incorrect because tax deductions are not necessarily more favorable than tax credits for most taxpayers. Option C is incorrect because tax credits do not reduce taxable income. Option D is incorrect because tax deductions do not reduce taxes owed on a dollar-for-dollar basis.

To Encourage Low- to Moderate-Income Workers to Save for Retirement