How does a tax credit differ from a deduction?

A tax credit is significantly more beneficial than a deduction. A credit reduces your Georgia taxes dollar-for-dollar. A deduction reduces the taxable income to which the applicable tax rate is applied.

For example, suppose a taxpayer contributes $1,000 to GRACE. A 100 percent tax credit reduces the taxpayer’s Georgia income tax by $1,000. On the other hand, the state income tax rate for most Georgians for 2024 will be 5.49 percent.  So a $1,000 deduction from income would only generate a $54.90 reduction in taxes. The difference is 100 cents on the dollar for a credit and 5.49 cents on the dollar for a deduction.