2008 Economic Stimulus Package Tax Rebate

Now that President Bush has signed into law the new economic stimulus package, many questions are circulating about the tax rebate included in this package. As a tax professional, I would like to answer the most commonly asked questions regarding the tax rebate:

What exactly is the Tax Rebate?

Tax rebates are a tool used to stimulate the economy during times of economic hardship to encourage consumer spending. The hope is that recipients of the tax rebate will turn around and spend those rebates to help a lagging economy.

Who qualifies for the Tax Rebate?

A taxpayer MUST meet the following eligibility requirements:

1. Have a valid social security number (ITINS and ATINS will not qualify for the tax rebate)

2. Filed a Form 1040, 1040A, or 1040EZ for the 2007 tax year.

3. Not be a dependent of another taxpayer

4. Have reported at least $3000 of eligible income (see the rules below regarding eligible income) or have a tax liability of at least $1

What is eligible income?

Included in elibigle income for purposes of the tax rebate are the following types of income:

1. Taxable income as reported in the taxpayer's federal tax return

2. Certain nontaxable income including Social Security, Railroad Retirement, and certain Veteran's benefits (Supplemental Security Income, or SSI, is NOT qualifying income for purposes of the tax rebate)

How much will I get?

Eligible single taxpayers will receive between $300 and $600 while married couples filing jointly will receive between $600 and $1200 total combined rebate. Additionally, qualifying households may receive a $300 rebate per child. To qualify for the $300 per child, the child must have a valid social security number, have lived in the tax payer's household, be claimed as a dependent on the tax payer's federal tax return for 2007, and have been under the age of 17 as of December 31, 2007. The exact amount of the rebate depends on the taxpayer's qualifying income and total tax liability before the child tax credit.

Are there any income limits?

Yes, the tax rebate will phase out for those taxpayers who have adjusted gross incomes (AGI's) above $75,000 for single taxpayers and $150,000 for married filing joint taxpayers.

Do I need to file a tax return to receive the tax rebate?

Yes! You must file a 2007 tax return in order to qualify for the tax rebate during 2008. The 2007 tax return will serve as a record of filing status, qualifying income, qualifying dependents, net tax liability, which will be used to determine the exact amount of the tax rebate. For purposes of the rebate, a 1040A should be filed to claim nontaxable qualifying income, such as Social Security and Railroad retirement, in order to establish eligibility for the tax rebate. Contact your local tax professional for information on how to file to claim the tax rebate if you are not required to file a regular income tax return based on taxable income.

Will the rebate be taxed on my 2008 return

The rebate funds are NOT TAXABLE and can be used in any manner that the taxpayer sees fit.

Will the rebate impact or change my 2008 tax return or refund?

The ACTUAL credit amount will be based upon calculations from the 2008 tax return. The amount that taxpayers receive in advance during 2008 are ESTIMATES based upon the 2007 tax return filed. If there is a change in circumstance when filling the 2008 tax return that would qualify the taxpayer to receive an additional amount that the estimate that was already received, the taxpayer will be able to receive that additional amount as a refundable credit when filing their 2008 tax return. If based on the 2008 tax return numbers the taxpayer should have received less than they received, they are entitled to keep the difference and will not be expected to pay that amount back to the IRS when filing their 2008 return.

What if I owe back taxes or child support?

The IRS will apply the tax rebate amount to any outstanding federal tax debt or other amounts owed. If there is any portion of the rebate remaining after these debts are paid then it will be sent out to the taxpayer.

How and when will I receive my tax rebate?

Tax rebate payments will be begin around May 2, 2008, for those taxpayers who filed electronically and chose direct deposit to a checking or savings account for their 2007 tax refund. Paper checks for all other filers will start processing on May 16, 2008.

What if I do not file a 2007 tax return and will be eligible for the tax rebate based on my 2008 return?

Individuals who don't file a 2007 return will have to wait to claim the rebate until they file their 2008 return.

How will the IRS contact me?

The IRS will send out two notices through the regular postal mail system to most taxpayers. The first notice will explain the stimulus payment program. The second notice confirms eligibility for the tax rebate, the payment amount the taxpayer will receive, and the approximate time table for receiving the payment. Please be aware that there may be email and telephone scams using the IRS name as a lure for taxpayers to disclose personal information. The IRS does not gather personal or financial information over the phone or through email. Please report questionable emails or phone calls to phishing@irs.gov.