Understanding tax credits vs rebates

People use the phrases “tax credit” and “tax rebate” almost interchangeably, so we don't blame you for being confused.

While credits and rebates are both inarguably good for you wallet, they're slightly different.

A tax credit reduces the amount of income tax you'd otherwise need to pay at tax time. For example, if you owe $1,500 in federal income taxes at the end of the year and claimed a $1,000 federal tax credit for energy efficient equipment, you'd now only owe $500 in taxes. Nice!
A tax rebate, on the other hand, is a more immediate discount that gives you cash back after you make a purchase. You’ll usually get your rebate back faster than you do a credit, sometimes even at the same time you make the purchase. Rebates don’t rely on income levels, either.

The IRA creates new tax credits AND new rebates. To learn more about the differences, tap below!