Difference Between a Tax Credit & a Tax Rebate

Tax credits reduce the amount of tax you owe, while a tax rebate is the money you get back if you have overpaid in tax withholding.

Types of Tax Credits

Tax credits can be refundable, partially refundable or non-refundable. If refundable tax credits exceed your tax liabilities, you will receive a refund check. If your tax liability is reduced below zero by non-refundable credits, you will not get a refund.

Calculating Tax Credits

The value of the tax credit is determined by the rules for that particular credit. For example, the energy efficiency tax credit equals 30 percent of the cost to install, up to $1,500, while the first time home buyer credit equals 10 percent of the cost of the home, up to $8,000.

Calculations

After you have calculated your taxable income, you use the income tax tables to determine how much you owe. From this amount, subtract the value of your credits to determine your tax liabilities. Remember that only refundable tax credits can reduce tax liabilities below zero.

Effects of Tax Withholding

Most people have money withheld from their paychecks to pay for their income tax. In order to determine the amount of your refund, subtract the amount withheld from your tax liabilities. If the result is lower than zero, you will get a refund.

Time Frame

You can check the status of your tax refund online at the Internal Revenue Service website. You will need your Social Security number, filing status and the dollar amount of your refund.

References

• The Finance Buff: Tax Credits
• IRS: What Information Is Available on Where's My Refund?

Resources

• IRS: Where's My Refund?