A tax credit reduces the tax bill itself. The IRS puts the difference plainly: a credit is subtracted from the tax you owe, while a deduction is subtracted from your income before tax is worked out, as its credits and deductions page explains. So a credit of 1,000 saves 1,000 of tax, while a deduction of 1,000 saves only your marginal rate on it.
Ireland builds its whole income tax around credits. Tax is charged on all of your income at 20% up to the standard rate band and 40% above, and then credits come off the result. In 2026 a single employee gets a €2,000 personal credit and a €2,000 Employee (PAYE) credit, according to Revenue's rates chart, so the first €4,000 of tax is cancelled. At the 20% rate that has the same effect as €20,000 of tax-free income. The employee credit is capped at 20% of PAYE income for low earners, per Revenue.
Some credits shrink as income rises, and that withdrawal acts like an extra tax rate. New Zealand's independent earner tax credit is $520 a year for incomes from $24,000 and is reduced by 13 cents for every dollar above $66,000, according to Inland Revenue. Across that range your marginal rate is 13 points higher than the band suggests.
A credit can also be refundable, paying out even when it is larger than your tax, or non refundable, stopping at zero tax.
The take-home pay calculator applies the credits each country's payroll gives, including Ireland's, the Netherlands' and New Zealand's, and its derivation shows each one coming off the tax.