How does a tax credit affect an individual's tax payment?

A tax credit directly reduces the amount of tax an individual owes to the government. When a person qualifies for a tax credit, it is subtracted from their total tax liability, making the overall payment to the tax authorities lower than it otherwise would be.

For example, if an individual has a tax liability of €1,000 and qualifies for a €200 tax credit, their new tax payment will be €800. This mechanism incentivizes certain behaviors or supports taxpayers in various circumstances, such as education expenses or energy-efficient home improvements.

The other choices do not accurately describe the function of a tax credit. A tax credit does not increase the payment, eliminate the need for payment entirely, or redistribute the obligation to other taxpayers. Rather, it is specifically designed to provide a financial benefit by reducing the individual's tax burden directly.