For many Americans, tax season can feel like a maze of forms, deductions and confusing jargon. Even for those who are veteran filers, taxes aren't always an easy feat.

One of the many tax terms that may be hard to understand is a "federal tax credit." In simple terms, this type of credit is a benefit offered by the government to help reduce your tax liability. But this doesn't mean it's the same as a deduction.

Here's a guide to tax credits, what they are and how they work.

What is a federal tax credit?

Broadly speaking, a tax credit is the dollar-for-dollar amount of money that taxpayers subtract directly from the income taxes they owe. There are different types of tax credits, including:  

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• Nonrefundable
• Refundable
• Partially refundable

Both federal and state governments give tax credits, such as the Child Tax Credit or Lifetime Learning Credit, in order to sustain and benefit the economy. 

A federal tax credit is granted by the federal government.

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Tax credit vs. tax deduction 

While they may appear similar, tax credits and tax deductions are separate things. 

A tax credit refers to the specific amount taken away from what a person owes. For example, if you receive a tax credit of $2,000 on a $4,500 tax bill, it would be reduced to $2,500.

On the other hand, a tax deduction reduces the amount of your income that is taxed. Let's say you have a taxable income of $60,000 and you receive $10,000 in deductions. This would reduce your taxable income to $50,000.

The main difference is tax credits impact the total tax, while deductions only affect the amount of your income that is subject to tax.