What is the Tax Relief Credit?

A tax Credit is a type of tax relief. So, if you want to understand what is the Tax Relief Credit, you need to be patient and take a step back because, first, you need to have a clear what tax relief is.


What is tax relief?

Tax Relief is always some kind of government program that helps individuals and businesses reduce their taxes to have some economic relief.

After the pandemic, you may have heard a lot of this term because many measures were taken to help people and businesses overcome the crisis due to the pandemic and the various lockdowns.

Tax relief can happen in many forms, but the principle is always the same: providing some relief from tax duties to people so that they can overcome a difficult period.

Tax relief can therefore be in the way of:

  • A reduction in the taxes someone has to pay.
  • A tax delay: you don’t have to pay your taxes now, but – if you want or need to – you can pay them later when the difficult period (hopefully) comes to an end.
  • Cancellation of taxes. For example, governments can decide that on certain payrolls, for a certain period of time (for example, one year), citizens don’t need to pay taxes. The consequence, in this case, would be that payroll, for that precise period, will be higher for every worker.

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What is a tax credit?

Tax Credit is one form of tax relief, and this is how it works: tax credits reduce the amount of taxes you need to pay to the fiscal authorities.

Why is it called a tax credit?

As you know, a debit is something you owe to someone. Credit is something someone else, in this case, the fiscal authorities, owes you.

If you have a tax credit, you can use it to pay your taxes. To understand better how it works, let’s make an example.

The government decided to provide tax relief in the form of a $1000 tax credit for your category of workers: so you have a $1000 tax credit.

When you need to pay your taxes, if you need to pay, say, $3000, you can use the $1000 credit and pay only $2000 of your own money.

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When can I have a tax relief credit?

Like any other form of tax relief, the government or fiscal authority always decides when, how, and to whom to provide tax relief.

There is always a law or regulation that the authorities discuss, and that needs approval officially.

Then, you can obtain your tax relief credit either:

  • Automatically, so that you don’t need to fill any paper or do anything else (this rarely happens);
  • Applying for the tax credit, filling in the required paper, and providing the required documents.

Tax relief credits are a great help for people who are struggling economically: it isn’t a delay or a loan. Tax credits are money that you can only use to pay your taxes but that you never need to refund, payback, or pay in a second moment.

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