Tax Credits Defined
Each year, both the federal and state governments try to alleviate many financial burdens on the average consumer. As part of our legislative efforts, HPBA staff have worked hard in placing numerous tax credits, rebates, deductions and exemptions into pieces of legislation for our members.
Although each of these financial deductions serve the greater good, they all work differently and each may be or may not be appropriate for everyone.
From wood stoves to pellet furnaces, there are many different financial incentives at the state and federal levels. The following terminology should help you understand the differences of each.
Tax Credits are arguably the most important financial incentive as they directly reduce the amount of taxes owed. Whereas a tax deduction reduces taxable income, the tax credit reduces tax directly.
Tax Deductions are subtracted from any taxable income. It is a reduction in the gross amount on which a tax is calculated and it reduces taxes by the percentage fixed for the taxpayer's income bracket.
Tax Exemptions are worth a specific dollar amount at the end of the financial year. An exemption generally refers to a statutory exception to the rule rather than the mere absence of taxation.
Rebates are also called vouchers and they save a consumer money directly when they purchase an item. Unlike exemptions and credits, rebates are immediate and may be more valuable to households who cannot wait until the end of the financial year. Rebates are, arguably, a greater incentive for changeouts as the rebate could be instant, point-of-sale.
State Incentives There are many state-specific financial incentives available for the consumer. HPBA has put together a list (not exhaustive) that highlights many of the financial breaks we have helped implement.