Background. In February, Congress passed the Economic Stimulus Act of 2008 (H.R. 5140) in an attempt to stimulate the economy by authorizing the issuance of rebate checks to 130 million taxpayers, plus some business incentives. Starting in May, the U.S. Treasury Department will begin sending out the rebate checks, and will continue doing so through the late spring and summer.
What do you need to do to get a rebate check? All you need to do is file a federal income tax return for 2007. Even if you are not otherwise required to file a tax return, you must file a 2007 return in order to receive a payment this year. Although some filers, such as high-income filers, will not qualify for a stimulus payment, most will. Low-income workers and Social Security beneficiaries who normally don’t file a return may receive a rebate check if they do.
You do not need to calculate the amount of your rebate check. If you qualify, the IRS will automatically figure it and send it to you. The IRS will also send you a notice showing the amount of your payment. You do not need to call the IRS or fill out any other special forms.
The IRS has emphasized that people with no filing requirement who turn in a tax return to qualify for a rebate check will not get a tax bill. People in this category will not owe money because of the stimulus payment.
Who is eligible? Most people with a 2007 net income tax liability will qualify. This includes most people who get tax refunds. Net income tax liability is the amount shown on Form 1040, Line 57 plus the amount on Line 52. Families with children under 17 generally will qualify for an additional payment. Some people with no tax liability also will qualify. This includes Social Security beneficiaries and low-income workers with earned income or benefits of at least $3,000. Some higher-income taxpayers will not receive a stimulus payment or will receive a reduced payment.
Tip. The 2008 tax form instructions will include a worksheet to help those who did not qualify for a rebate check or those who received a reduced amount determine if they can obtain a benefit when they file their 2008 tax returns next year.
How much will you receive? The IRS will use your 2007 tax return to determine eligibility and calculate the amount of the rebate check. In most cases, the payment will equal the amount of tax liability on the return with a maximum amount of $600 for individuals ($1,200 for taxpayers who file a joint return) and a minimum of $300 for individuals ($600 for taxpayers who file a joint return).
Even those who have little or no tax liability may qualify for a minimum payment of $300 ($600 if filing a joint return) if their tax return reflects $3,000 or more in qualifying income (earned income such as wages and net self-employment income as well as Social Security or certain veterans’ benefits). To qualify for a rebate check, these persons are required to file a tax return.
Caution. Taxpayers should be aware that there are identity theft scams involving the rebate checks. The IRS is aware of at least one telephone scam using the word “rebate.” Unsuspecting persons receive a phone call from someone claiming to be an IRS employee. The caller tells the targeted victim that he or she is eligible for a sizable rebate, and then asks for the victim’s bank account information to facilitate a direct deposit of the rebate. Victims who refuse to divulge this information are informed that they will not receive the rebate. This phone call is a scam. The IRS does not force taxpayers to use direct deposit. Those who opt for direct deposit do so by completing the appropriate section of their tax return, with bank routing and account information, when they file. Moreover, the IRS does not gather the information by telephone.
Tip. If you receive an unsolicited e-mail communication claiming to be from the IRS, forward it to: phishing@irs.gov using the instructions provided on the IRS website.
Extra money for a qualifying child. Taxpayers who qualify for a rebate check (regardless of amount) may receive an additional $300 for each qualifying child. To qualify a child must be under age 17 as of December 31, 2007. In other words, if a child was 16 or younger at the end of 2007 and meets the other eligibility requirements, then the child will qualify for the $300 stimulus payment.
Key point. To qualify for the extra credit for qualifying children, not only do the taxpayer and spouse, if filing jointly, need valid Social Security Numbers, but the qualifying child must also have a valid Social Security Number.
Phase-out. The stimulus payment (both the basic component and the additional funds for qualifying children) begins to phase out for individuals with adjusted gross incomes (AGI) over $75,000 and married couples who file a joint return with AGI over $150,000. The combined payment is reduced by 5 percent of the income above the AGI thresholds.
Here are two examples of how the phase out works:
Example. An individual with AGI of $80,000 and federal income tax liability in excess of $600 would qualify for a basic rebate of $600. Because this individual’s AGI exceeds $75,000, however, her rebate is reduced by $250 (the credit is reduced by multiplying the amount of AGI over $75,000 by 5%). The taxpayer receives an economic stimulus payment of $350.
Example. A married couple with two children, AGI of $160,000 and federal income tax liability before the child tax credit exceeding $1,200 qualifies for a basic rebate of $1,200 and an additional qualifying child credit of $600 for a total rebate of $1,800. But because the couple’s AGI exceeds $150,000, their rebate is reduced by $500 (the amount of AGI over $150,000 multiplied by 5%). The couple receives an economic stimulus payment of $1,300.
When will you receive your rebate check? The Treasury Department will start sending out payments in early May. If you are eligible for a tax refund, there will be two payments. You will receive one payment for your regular tax refund and later you will receive your rebate check.
Taxpayers who have moved since filing their 2007 tax return. You should file a Form 8822 with the IRS and a change of address notice with the U.S. Postal Service. This will ensure your check is sent to your new address. Without your current address, the check could be returned to the IRS as undeliverable.
Can rebate checks be direct deposited? Rebate checks will be direct deposited for taxpayers who selected that option when filing their 2007 tax returns. Taxpayers who did not request direct deposit for their 2007 refund will receive a paper check by mail.
Key point. If you elected to have your tax refund applied to your 2008 taxes, you will still receive a rebate check. It will not be applied to your 2008 taxes.
Key point. If you elected to split your refund between several accounts, you will not receive your rebate check by direct deposit. Instead, you will receive a paper check.
Are rebate checks taxable? No. You will not owe tax on your payment when you file your 2008 federal income tax return.
Tip. You should keep a copy of the IRS letter you receive later this year listing the amount of your payment. In the event you do not qualify for the full amount this year but you do next year, you will need to have the letter as a record of the amount you previously received.
Examples. The following examples are included in a report prepared by the staff of the Joint Committee on Taxation.
Example. A single taxpayer has $14,000 in Social Security income, no qualifying children, and no net tax liability prior to the application of refundable credits and the child credit.The taxpayer will receive a rebate of $300.
Example. A married taxpayer filing jointly has $40,000 in earned income, two qualifying children, and a net tax liability of $1,573 prior to the application of refundable credits and child credits (the taxpayer’s actual tax liability after the child credit is -$427). The taxpayer will receive a rebate of $1,800, comprising $1,200 (greater of $600 or net tax liability not to exceed $1,200), and $300 per child.
Example. A married taxpayer filing jointly has $175,000 in earned income, two qualifying children, and a net tax liability of $31,189 (the taxpayer’s actual liability after the child credit also is $31,189 as the joint income is too high to qualify).The taxpayer will, in the absence of the rebate phase-out provision, receive a rebate of $1,800, comprising $1,200 (greater of $600 or net tax liability not to exceed $1,200), and $300 per child. The phase-out provision reduces the total rebate amount by five percent of the amount by which the taxpayer’s adjusted gross income exceeds $150,000.Five percent of $25,000 ($175,000 minus $150,000) equals $1,250. The taxpayer’s rebate is thus $1,800 minus $1,250, or $550.
This article first appeared in Church Finance Today, May 2008.