A tax deduction lowers the income your tax is charged on. It does not cut the bill directly: its value is the tax those dollars or pounds would otherwise have paid. The IRS draws that line on its credits and deductions page, which sets deductions against tax credits, taken off the tax itself.
The arithmetic follows from your marginal rate. A $1,000 deduction saves $220 for someone whose top dollars sit in the 22% bracket and $120 for someone in the 12% bracket, while a $1,000 credit saves both of them $1,000. That is why deductions are worth more to higher earners and why some countries prefer credits.
In the United States the biggest deduction most people take is the standard deduction, $16,100 for a single filer in 2026 according to the IRS 2026 adjustments. You can replace it with itemised deductions instead, but you cannot have both, per IRS Topic 551. Contributions to a traditional 401(k) work like a deduction taken through payroll, lowering the wages income tax is charged on.
Watch for the other meaning of the word. A payslip lists deductions too, but those are amounts taken from your pay, income tax included, and most of them do not reduce anything. A tax deduction in the narrow sense is something that shrinks taxable income.
The take-home pay calculator applies the deductions payroll gives automatically, such as the standard deduction, pension contributions and the German flat allowances, and lists the larger ones you would claim on a return under what it leaves out.