A tax credit is money that's given to you for spending your money in a specific way, or belonging to a specific category of taxpayer.

For example, renters in California get a "renter's tax credit", which is a small amount of money you get for being a renter.

Parents get a Child Tax Credit of $1,000.

Another well known tax credit is the "earned income tax credit" or EITC, where people who work, but don't earn very much money, are given some money. The less you earn, the larger your credit. (Click EITC to learn more.)

The largest popular credit today (in 2010) is the first time homebuyer credit, which pays you $8,000 for buying a new house, if you haven't lived in a house in the past three years.

A tax credit is not a tax deduction. It is much better, because a credit's money in your pocket.

For some math to explain this, see Comparing a Tax Credit with a Tax Deduction.