Tax credits refer to a certain amount of money that can be directly deducted from taxes owed by the individual taxpayer. With the various tax deductions available, one may deduct these from the amount of money owed to the Internal Revenue Service (IRS).
The value of the credit is variable and influenced by the type of credit. A number of factors determine whether or not tax credits are issued to businesses and/or individuals. Some of these include, but are not limited to, industries, locations as well and classifications of businesses.
Understanding CTC elements a bit better
A tax credit is defined as the amount of money, to the dollar, that can be deducted from income taxes owed by an individual taxpayer. These specific tax credits have more preference than standard tax deductions as they reduce the overall amount of tax due, not just the amount of taxable income calculated. The various types of credits available can be roughly divided into three basic categories:
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- Partially refundable credit: Basically, with this type of credit, there is a refundable portion and the other portion is non-refundable. A good example of this is the American Opportunity Credit (AOC), where 40% of the credit is counted as a tax payment in a refundable portion.
- Refundable tax credit: These refundable tax credits pay out in full. These refunds become available after a zero tax due is calculated.
- Nonrefundable tax credit: A nonrefundable tax credit only lends itself to reducing taxes owed to a zero amount. No refunds are provided.
Tax credits have also been implemented by the state and federal governments as a means to promote a certain type of behaviour in individuals. These behaviours are usually required to boost the economy of the country.
Take, for example, something such as a tax credit that rewards the installation of solar panels for residential home use. Some of the other credits help offset costs on education, etc.
The meaning of tax credit in the state of Idaho
During the 2025 legislative session in Idaho, there was a combined passage of a greater amount than $400 million in tax cuts. These changes will provide an overall reduction in the income tax rates payable by businesses as well as individuals. Money will be shifted to numerous state funds. The purpose of these is to reduce property taxes, pay down public school bond issues, etc.
Another upcoming matter is the Idaho Child Tax Credit, which is set to expire before 1 January. The lifespan of this credit was from 1 January 2018 up until 1 January 2026. It was not renewed. It provided a $205 tax credit, which was nonrefundable. It was paid for each taxpayer’s child under the age of 17 years. Although there are numerous tax cuts on the cards, the effect of this one will be felt.
What will be the implications of this decision?
Families who will feel the aftereffects of this decision will mostly be Idaho families who do not own any form of property. They will not experience the same form of overall tax relief. Some suggestions were made that the Idaho child tax credit should have been renewed, there should have been an income cap, and that the credit should have been made refundable, as it would have then provided some relief to low and middle-class families.
Although the renewal of the child tax credit in Idaho was definitely on the cards, it seems that the legislator shifted their priorities and decided to cut taxes in other areas.
By focusing on property tax, income tax and schools, and sales tax, the focus was on a wider tax relief applicable to more individuals. It was more important to address the bigger issues that raised the most concerns from the constituents, which included the tax relief as well as property tax relief.
