A tax refund or tax rebate is a refund on taxes when the tax liability is less than the taxes paid. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of refundable tax credits that they claim or the total amount of withholding that they paid.
Other times a tax rebate is also called a tax credit. People may be able to take certain tax credits on their income tax returns, which help to reduce total amount of taxes owed. Occasionally these credits are one-time only events, so you do have to watch for different credits that might arise in a given year. In other circumstances, income may make people eligible to have all, some or most of their taxes rebated to them, or alternately, they may get money from programs like Earned income credit (EIC) which will refund money regardless of whether you paid any taxes. EIC is a US federal program that people may quality for if their income is fairly low.
Some people believe that getting a large tax refund is not as desirable as more accurate withholding throughout the year, as a large refund represents a loan paid back by the government interest-free. Optimally, a return should result in a payment owed of just less than would cause a penalty charge, which is 100% of the prior year’s tax (110% for high income individuals), 90% of the current year’s tax, or $1,000 for individuals who have direct withholding and do not pay estimated tax.
Tax rebates are sent out to taxpayers after they file their federal tax returns. They’re usually targeted toward the lower and middle classes. In 2008, single people with no children making $87,000 per year did not receive a rebate. Neither did married people without children making over $178,000 a year, according to American Public Media. However, tax payers making less than that did receive a tax rebate of $950 on average.
Critics maintain that tax rebates are not a good way to stimulate the economy because many people will save the money instead of spending it on goods and services. According to VoxEU.org, people do not like to drastically change their shopping patterns so tax rebates are more likely to be spent “gradually over many years.”
The American Recovery and Reinvestment Act of 2009 was signed by President Barack Obama on February 17, 2009. This measure provides that one-time federal government economic stimulus checks be distributed to certain veterans, Social Security & Supplemental Security Income recipients, and railroad retirees.