In a Nutshell
Tax relief can help reduce the pressure of your tax burden. It can come in many forms and apply to different types of taxes. Multiple factors determine whether it’s available to you and how much it might help.This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma.
When you’re struggling to make ends meet, taxes can seem like one financial burden too many.
But you may be able to find tax relief, depending on your financial situation. What’s more, in response to the coronavirus pandemic, the federal, state and some local governments have taken steps to make tax relief more accessible.
Let’s look at what “tax relief” means, what types of tax relief there are, and how you may be able to get relief.
- What is tax relief?
- How does tax relief work?
- How can I qualify for tax relief?
- How can I find tax relief?
- How might tax relief help my finances?
- Are tax relief companies legit?
What is tax relief?
Americans pay many different kinds of taxes, such as federal and state income taxes, sales taxes, real estate taxes, personal property taxes, “sin” taxes and more. Of course, not everyone pays all those taxes, and not everyone pays the same amount.
Tax relief can be broadly defined as reducing the amount of tax you have to pay, and during the coronavirus crisis, the IRS also counts the extended filing and payment deadline as a form of tax relief. Because there are many different kinds of taxes, and every taxpayer’s circumstances are unique, there are also different kinds of tax relief.
How does tax relief work?
Different types of tax breaks work in different ways to provide tax relief.
Direct tax relief programs
Taxpayers in specific situations — disaster victims, for example — may be able to qualify for direct relief programs aimed at helping them. How the programs provide relief can vary. For example, tax relief for people affected by the California wildfires of 2018 included additional time to make estimated tax payments, extension of some deadlines and waiving of penalties.
Tax credits
Tax credits are dollar-for-dollar reductions in the amount of tax someone owes. Tax credits are often targeted at specific financial situations — for example, the earned income tax credit reduces federal income taxes for qualifying people who earn low to moderate incomes.
Tax rebates
Tax rebates are very similar to refunds — in fact, you’ll often see the terms used interchangeably. A tax rebate returns to the taxpayer a portion (or sometimes even all) of a certain tax they paid in a year. Unlike refunds, though, you don’t necessarily have to overpay your taxes to get a rebate. For example, property tax rebate programs typically give back a portion of property taxes paid.
Tax deductions
Tax deductions reduce the amount of your income that’s subject to taxation and can help lower your tax liability. While some deductions, like the federal standard deduction, are generally available to everyone, others reduce taxable income for specific groups. For example, the student loan interest deduction provides tax relief to people repaying certain types of student loans who meet the income limitations.
Tax exemptions
Like tax deductions, a tax exemption allows certain individuals or organizations to exclude income from taxation. When applied to property, an exemption can allow qualifying individuals to reduce the amount of property value that’s subject to tax. And some organizations, like nonprofits and churches, may be completely exempt from paying income tax.
How can I qualify for tax relief?
Tax breaks of any kind generally require you to meet certain eligibility standards in order to qualify. For example, in order to receive a coronavirus stimulus payment — which is actually an advanced tax credit for 2020 income taxes — you have to meet adjusted gross income limits.
Qualifications can vary, but here are some examples of eligibility requirements.
- Income limits
- Citizenship or residency requirements
- Age limits
- Disability
- Circumstances (such as being affected by a natural disaster or having served in the military)
Of course, this isn’t an exhaustive list. The best way to determine if you might qualify for a specific tax break is to research its eligibility requirements.
How can I find tax relief?
No single resource can tell you everything there is to know about tax relief and what you might qualify for. But here are some tips that could help you learn more about available tax relief.
Property tax relief
Because property taxes are levied at the local level, you’ll need to look to your local government (state, county or municipality) to learn about property tax relief.
Federal income tax relief
The federal government makes numerous tax credits and deductions available to taxpayers. The best place to start learning about these deductions and credits is IRS.gov, where you’ll find information about credits and deductions for individuals and businesses.
State tax relief
State tax relief can vary from exemptions to credits and deductions. State departments of revenue or finance typically provide information about tax breaks on their websites.
Disaster tax relief
Certain natural disasters may qualify for federal disaster tax relief. If you’ve been affected by a natural disaster, check out the IRS page on disaster tax relief to find out what might be available.
How might tax relief help my finances?
Tax breaks of any kind are meant to help reduce your tax obligation.
Some, like deductions or exemptions, do this by allowing you to exclude portions of income or asset value from tax calculations. Others, like tax credits, directly reduce the amount of tax you owe. Still other tax relief measures, such as delaying filing of tax returns or payment deadlines, aim to give you more time to deal with the financial impact of taxes.
Reducing the amount of tax you pay can allow you to put that money toward other uses that are important to you, such as paying day-to-day expenses, paying down debt or saving toward specific goals.
Are tax relief companies legit?
Type “tax relief” into a search engine and you’ll see lots of ads for companies that claim they can help you get tax debt relief.
Tax relief companies generally focus on consumers with outstanding tax debt. They typically promise to get tax debt reduced or eliminated and stop collections actions by applying for real IRS programs like payment plans or offers in compromise.
But those programs can be hard to qualify for — and you can apply for them yourself without paying a third party to do it for you. Plus, the Federal Trade Commission warns that some tax relief companies are outright scammers, demanding thousands of dollars in upfront fees, never filing paperwork with the IRS, and even making unauthorized credit card charges or bank account withdrawals.
Bottom line
Multiple types of tax breaks have always been available. Since the start of the coronavirus crisis, governments at all levels have taken steps to increase the amount of tax relief available and put it within reach for more Americans.
But you’ll have to do some legwork to learn what tax relief you qualify for. On the federal level, the IRS website provides a great deal of information about coronavirus tax relief. To learn about state and local level tax relief, head to the web pages of your state, county and local governments.
Keep in mind that each program and jurisdiction will likely have its own specific eligibility requirements to qualify for tax relief.
Relevant sources: IRS: Tax Help for California Wildfire Victims | IRS: Credits and Deductions for Individuals | USA.gov: Earned Income Tax Credit | IRS Tax Topic No. 456: Student Loan Interest Deduction | Tax Cuts and Jobs Act of 2017 | Coronavirus Aid, Relief and Economic Security Act | Federal Trade Commission Consumer Information: Tax Relief Companies
Christina Taylor is senior manager of tax operations for Credit Karma. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.