What type of financial relief allows taxpayers to subtract an amount from their taxes owed?

The correct choice is a tax credit, which provides direct financial relief by allowing taxpayers to subtract a specific amount directly from their tax liability. This means that if a taxpayer owes $1,000 in taxes and has a $200 tax credit, their tax bill would be reduced to $800. Tax credits can either be nonrefundable, meaning they can reduce the tax owed to zero but not below that, or refundable, which means they can result in a refund if the credit exceeds the tax owed.

A tax deduction, in contrast, reduces taxable income rather than the tax owed. For example, if a taxpayer has an income of $50,000 and $5,000 in deductions, their taxable income would be lowered to $45,000, which in turn affects the amount of tax they owe but not as directly as a tax credit.

A tax rebate is a kind of refund issued to taxpayers, often based on overpayment or a specific criteria, but it does not directly decrease the tax owed at the time of filing.

Lastly, a tax exemption reduces the amount of income that is subject to taxation, effectively lowering taxable income, but it does not offer the immediate tax relief that a credit provides.

Thus, a tax credit represents