Although the terms “tax relief” and “tax rebate” are often used interchangeably, they have two different meanings. One is a broader term that includes a variety of ways Americans can reduce and manage their federal tax burden. The other is a very specific tool that the IRS uses to stimulate the economy.
We’ll explain both in detail, how they work, and why each is important to your financial life. Plus, learn when it’s warranted to enlist the help of a tax-saving expert.
What is tax relief?
Tax relief is a broad umbrella term that refers to programs and policies that help taxpayers reduce and manage their federal tax burden.
“Any method that reduces your tax liability or increases your refund is considered tax relief,” says Brian Menk, Ph.D., a certified public accountant and associate professor of accounting at Duquesne University. This includes everything from tax credits and deductions to offers in compromise and income-driven repayment plans.
What is a tax refund?
Tax refunds are payments made directly to eligible taxpayers and are typically structured as an advance payment of tax credits.
“Rebates are used by governments as a tool to improve the economy. The money given to taxpayers is intended to be used to boost the economy and stimulate purchases,” Menk explains.
A tax rebate typically includes a refundable tax credit, but it differs from a standard tax credit in several ways. First, it’s not a recurring credit that you can claim every year. These are temporary, one-off services that are often introduced during economic crises.
Additionally, taxpayers can claim standard tax credits when filing their taxes, reducing the amount owed dollar for dollar. Tax rebates, on the other hand, tend to be paid directly upfront to Americans, with eligibility based on the previous year’s tax return.
Common misconceptions about tax relief and rebates
Tax refunds are widely misunderstood. The IRS does not clearly define these and does not provide them regularly. As a result, the term is often used interchangeably with tax relief, tax credit, and tax refund. However, all four are different.
Another common misconception is that you need to handle complex tax matters yourself. “Some people believe they can find solutions and negotiate on their own. This is a big mistake,” Menk said. He explains that the Internal Revenue Code (the laws and regulations related to taxation) is extremely complex, currently over 4,100 pages long. Even tax professionals do not know every aspect of this law.
Additionally, you will be at odds with the IRS itself, which has its own interests in mind. If you have a complex tax situation, it is wise to seek the help of a professional who can advocate on your behalf. “It’s important to work with someone who specializes in this field,” says Menk.
How to know which one applies to you
When the federal government introduces a new tax rebate, details of the program will be published so you can see if you’re eligible for it. In recent cases, payments are automatically made to the majority of eligible recipients, so you can even tell when a payment is made to your account. However, we recommend checking the details in case you need to take any steps to qualify.
When it comes to tax relief, it applies to everyone. All taxpayers should take advantage of the credits and deductions available each year come tax season. However, if you’re late filing your taxes, incurring penalties, or have more debt than you can pay, you may need a more advanced tax relief solution.
Cases where tax reduction services may be involved
If you find yourself in a more complex situation, we recommend seeking help from a professional tax relief company. For example, it makes sense to do so if:
- I received repeated notices from the IRS.
- paying a large amount of unpaid taxes
- I don’t know which resolution program I’m eligible for.
- Facing a wage garnishment or collection lawsuit
Companies such as Optima Tax Relief, Anthem Tax Services, Alleviate Tax, BC Tax, and Priority Tax Relief offer services aimed at helping taxpayers deal with IRS debt. They have years of experience helping Americans deal with complex tax issues, so they can often help streamline the process and protect your interests.
conclusion
Tax relief and tax rebates are not directly comparable, nor is there generally a choice between them. The tax refunds include direct payments made to Americans to boost the economy and refundable tax credits for eligible recipients who missed out on advance payments.
Tax relief is a broad term that includes any method of reducing or managing the federal tax burden and may include tax rebates. Although there are always various forms of tax relief available from the IRS, tax refunds are temporary programs put in place by the government as needed.
If you’re considering professional support, you can use our interactive map to find tax relief providers near you and compare service and support options.
Frequently asked questions about tax relief and tax refunds
Learn more about tax relief and tax refunds.
What is the difference between a tax credit and a tax refund?
Tax relief is an umbrella term that includes any legal method of reducing or managing a taxpayer’s tax liability. A tax refund is paid directly to the taxpayer and is often structured as an advance payment of a tax credit.
Is a tax rebate the same as a tax refund?
No, a tax refund generally refers to an advance payment of tax credits. A tax refund is money returned to a taxpayer when the total amount paid and refundable deductions exceed the final tax owed.
Can I receive both tax relief and tax refund?
Yes, tax relief includes any legal action you take to reduce or manage your tax liability. This may include claiming a tax refund when you file your return, as well as claiming credits, claiming deductions, and setting up payment plans.
Is a tax refund taxable income?
Details of tax rebates, including whether they are taxable, are typically outlined at the time the rebate program is announced. In the case of the recent Recovery Rebate Credits in 2020 and 2021, the payments were considered economic relief rather than taxable income.
What is the difference between tax reduction and debt consolidation?
Tax relief refers to IRS programs that help taxpayers reduce or manage their federal tax debt, such as payment plans, penalty reductions, or offers in compromise. Debt consolidation is a strategy in which you negotiate with private creditors to pay less than what you owe, usually after stopping payments and saving a lump sum. Debt resolution can damage your credit and lead to collections, but tax relief requires working within established IRS resolution programs.
