Some of these tax benefits are meant to reflect a person's ability to pay taxes; the child tax credit, for example, recognizes the costs of raising children. Unlike exemptions and deductions, which reduce the taxpayer's taxable income, the credits directly reduce the taxpayer's tax liability, that is, the amount of tax that a taxpayer owes. Heads of household can also use wider tax brackets, allowing more of their taxable income to fall into lower tax brackets. A tax credit differs from deductions and exemptions, which reduce taxable income, and not directly the taxpayer's tax bill.
In general, head of household status allows parents or adults with dependents who qualify and to pay more than half the cost of maintaining a home to an eligible person to apply for a higher standard deduction and pay taxes at lower tax rates than single taxpayers or those who are married who file a separate return. Exemptions and deductions indirectly reduce the amount of tax a taxpayer owes by reducing their “taxable income,” which is the amount of income on which the taxpayer pays taxes. The IRS also requires that all taxpayers who file their return as head of household be considered single as of the last day of the tax year. Tax deductions (and exemptions) have a different value for different taxpayers because, as mentioned above, their value is linked to the taxpayer's marginal tax rate.
Some tax credits are refundable, meaning that taxpayers whose amount of credit exceeds their tax liability can receive the difference in the form of a full or partial refund in cash.
