Yes Craze1cars us correct...The federal tax credit is exactly that. If you own $9000 in taxes, when the credit is applied, your taxes would be reduced to $1500. If though, you only owe $5000 in taxes, you would only get $5000 of credit. You would not pay any taxes, but you would leave $2500 on the table. The state of Texas "rebate" though generates a 1099-MISC, and to the best of my knowledge, a 1099-MISC means that it is treated as income. The tax credit though is applied directly to the filer's federal income taxes owed. If they owe over $7500, they get to subtract $7500 from the bill, and if they own less than $7500, they don't pay any taxes at all (and if they had withholding, they would get all of that money as a refund). Absolutely a tax credit though. I just did my Turbo Tax and I filled out the 8936 tax form an it reduced my taxes by $7500. https://www.irs.gov/pub/irs-pdf/f8936.pdf I think though OKO may have been talking about the Texas rebate, which is fully taxable. You receive a 1099-MISC and that goes to the IRS as well, so the computer is going to match that to the filer's form and if the filer does not claim it, the IRS will send out a letter saying that it is taxes owed.