Here are some basic tax phrases that will assist you in understanding how each of the following tax breaks will most benefit you. A tax deduction is a reduction in your taxable earned income. If your taxable income is $30,000, you can deduct the $3,300 dependent exemption from that income to reduce your taxable income to $26,700.

A tax credit is a post-tax deduction in the amount of taxes you owe. If you owed $3,500 in taxes, you could use the child tax credit and deduct $1,000 per child from the amount of taxes to be paid, reducing your taxes to $2,500 if you had one child, to $1,500 if you had two, and so on.

A refundable tax credit occurs when you overpaid your taxes throughout the year. You can add the refundable tax credit to the amount you're owed for overpaying taxes for the year. You can even get a refund for your tax credits if you owed no taxes for the year.

Hypothetically, if a single mother with one qualifying dependent child files and owes $0 before the credit, she could possibly be refunded $1,000, but the IRS requires a few conditions be met before a refund is granted. Form 8812, “Additional Child Tax Credit,” will help you calculate the actual refund and whether you qualify.