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You can use the credit to reduce or eliminate your tax liability. Here's how the credit works. You take your total income, reduce it by your deductions and exemptions to arrive at your taxable income. Using tax tables and/or worksheets you will calculate your tax liability for the year. Than you can use the credit to offset it. What you cannot use, will be carried over to future years.
For instance, your total income is 75,000 and after your deductions (standard or itemized based on your filing status) and exemptions (for every person listed on the tax return) you will end up with 50,000 of taxable income, you use the tax table to figure out your tax. Lets assume 15% tax bracket, your tax liability will be 7500 (50,000x15%). You can use 7,500 of the credit to eliminate your tax and carry over the remaining 3,500 to next year.
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