What if we told you that you could receive money back after filing your taxes? Well, that’s called a tax rebate. Some people don’t even know that they are eligible for a tax rebate, so they miss out on the money they could get back.
But what is a tax rebate? And how do tax rebates work? Understanding this can help you get the most out of the benefits.
By the end of this blog, you will know what are tax rebates, different types of tax rebates, how to claim your tax rebate, and the difference between rebates, credits, and deductions.
Understanding Tax Rebates
A tax rebate is an IRS refund to the taxpayer when they have actually paid more tax than what they owe. This can happen due to reasons such as over-withholding, filing status changes, tax credits, amended tax returns, etc.
To secure a tax rebate, the tax has to be calculated correctly, and the returns have to be submitted within the deadline. A tax rebate can be received at any time of the year and it is not related to credits or deductions.
Types of Tax Rebates
Now that we know what is a tax rebate, let’s see what are the types of tax rebates.
Federal Tax Rebates
Federal tax rebates are not common. However, the U.S. government makes these special programs sometimes that give tax rebates to boost the economy or provide relief in times of crisis. Like the Recovery Rebate Credit, which Congress introduced in 2020 and 2021 to help people during the COVID-19 pandemic.
State Tax Rebates
State tax rebates are programs created by the state government to provide benefits or refunds to the taxpayer. A state can give rebates for different reasons.
At a glance:
- Economic Stimulus Rebates: During difficult economic times, crises, and situations demanding increased consumer spending, some states may provide needy citizens with economic rebates. These rebates are associated with economic situations, such as a recession or natural disaster, and are meant as fast financial aid.
- Property Tax Rebates: Property tax rebates are encouraged by many states to reduce the burden of property taxes on the homeowners. These rebates may take the form of cash payments, reductions in property taxes, or lower property value for tax purposes.
- Energy Incentives: Many states offer energy incentives to their residents. These incentives are to encourage homeowners to upgrade their homes with energy-efficient materials like installing solar panels, improving insulations, or replacing old appliances with energy-efficient appliances.
How Tax Rebates Work?
Knowing how tax rebates work is important to make sure you are benefited from it.
Here’s an overview of how it works:
- Tax Rebate Eligibility Criteria: The government sets specific criteria you have to meet if you want to qualify for a tax rebate. This criterion can depend on the type of rebate.
- Application Process: Some tax rebates require you to fill out a form or submit an application. After submitting the form, the tax authorities will check your details and confirm that you meet the requirements and you correctly provided all the important information.
- Approval and Payment: You will receive the funds once your rebate is approved. This is generally done via a check. But if your bank account details are available, you can get a direct deposit.
- Reconciliation: When you file taxes the next year, you may have to adjust the rebate you received. If the authorities see you owe more money, then you will receive your extra money. If there was an error in determining eligibility requirements for refunds, it is possible you will be required to pay some of your rebates back.
Tax Rebate vs. Tax Credit and Deduction
Now that you know the ins and outs of tax rebates, let’s dissect the difference between a tax rebate, tax credit, and tax deduction.
- Tax Rebates: A tax rebate can be defined as the return of funds to a taxpayer who has overpaid their tax liability. This can be done for different reasons like over-withholding, instances of specified tax cuts, and many others. Unlike any refund, you can receive rebates at any time of the year.
- Tax Credits: Tax credits directly reduce the amount of taxes you owe on a dollar-for-dollar basis. For example, if you owe $1,000 in taxes and qualify for a $200 tax credit, then your final tax bill will become $800. Some tax credits are refundable, meaning if the credit exceeds the tax obligation then the remaining balance will be refunded. In contrast, some tax credits are non-refundable which means that while they will reduce a tax bill to zero, they will not enable a refund.
- Tax Deductions: Tax deductions will help you lower the amount of taxes you are obligated to pay by lowering your taxable income. They do not reduce your tax bill directly, instead, they reduce the income on which the taxes apply.
Below is a comparison table to understand the difference better:
| Aspect | Tax Rebate | Tax Credit | Tax Deduction |
| Meaning | Money refunded when you’ve paid more than your tax liability. This can occur due to over-withholding, tax changes, or incentives. | Direct reduction of taxes owed, dollar for dollar. | Reduces taxable income to lower the amount of tax owed. |
| Impact on Tax Bill | Provides a refund after tax filing if you’ve overpaid. | Reduces the amount of tax you owe. Can be refundable or non-refundable. | Lowers the income on which tax is calculated. Doesn’t directly reduce tax bill. |
| Refundable | Can be received anytime, depending on eligibility. | Some tax credits are refundable, meaning you may get money back. | Not applicable; only reduces taxable income, not directly refunded. |
| Examples | Overpayment due to withholding, retroactive tax cuts, or economic stimulus payments. | Education credits, child tax credits, energy-efficient home credits. | Charitable donations, mortgage interest, medical expenses. |
| When You Receive | Can be received at any time during the year. | Applied directly when filing taxes, reducing your liability. | Reduces taxable income when filing taxes, lowering the amount owed. |
Claiming Your Tax Rebate
To claim the tax rebate, follow the steps below:
- Make sure to fill out your tax return properly and report your income, deductions, and tax credits accurately.
- After applying the eligible credits and income, you will need to determine and calculate how much taxes you need to pay for your taxable income.
- If you have overpaid on your tax obligations, you are most likely eligible for a tax rebate.
- Remember to submit your tax return before the deadline given by the IRS so that you receive your tax rebate in a timely manner.
Simplify the Tax Rebate Process with Hopkins CPA Firm
Understanding tax rebates is important to get the maximum benefits during tax season. Tax rebates can put money back into your bank account that you might not know you qualify for.
But this process might be confusing. Knowing the types of rebates, how to claim them, and what the eligibility are, is important to make the most of your tax filing.
Looking for help in claiming your tax rebate or simply need answers to what is a tax rebate? Hopkins CPA Firm is ready to guide you throughout the process. We can help you avoid any mistakes and make sure you get the rebate that you qualify for.
Get in touch with Hopkins CPA Firm and get the support you need today!
FAQ's
Are tax rebates considered taxable income?
Generally, tax rebates are not seen as taxable income at the federal level. However, there can be exceptions, so it’s better to check to make sure. For example, if the rebate is given as a part of pandemic relief, then it may not be taxed. The IRS said that most state tax rebates are not taxable. However, payments from Georgia, Massachusetts, South Carolina, and Virginia can be taxed if they were refunds of state taxes and the person itemized deductions and got a tax benefit. It is advised to stay informed about any updates by the IRS.
How long does it typically take to receive a tax rebate?
If you file your tax return electronically and choose direct deposit in your bank account, then you can expect to receive your tax rebate within 21 days. For paper return, as it takes longer, it can take up to four or more weeks. The IRS recommends e-filing and opting for direct deposits to make the process faster.
Can I claim a tax rebate for previous tax years?
It is indeed possible to claim a tax rebate for earlier periods as long as you are within the stipulated timeframe. Generally, you can claim any refund or credit up to three years from the original due date of your return. In case you submitted the return before the due date, the submission date will be considered as the due date.
What should I do if I think I'm eligible for a tax rebate but didn't receive one?
If you suspect you are entitled to a tax rebate that has not been given to you, first look into your return and check whether all the relevant credits and deductions have been taken. You can also track the status of your rebate by using the IRS “Where’s My Refund” tool. If it has been more than 21 days since your e-filing or over four weeks since mailing your paper return and you have not received an update, you can get in touch with the IRS for help.
