Stimulus Package Part 1: Rebates, Rebates, Rebates

Recently, Congress passed and President Bush signed H.R. 5140, the "Economic Stimulus Act of 2008."  You can read a detailed description of its provisions here.  Over the next two days, I will examine its two major tax provisions--the individual rebate and the business investment incentives.

The IRS has put out a very helpful page detailing how the rebate will work, and I will try to summarize it here, as well...

Rebate Amount

Eligible individuals (which excludes non-resident aliens, dependents, and estates) will be eligible for a 2008 tax credit equal to the greater of the following:

• Their tax liability or $600 ($1200 in the case of a MFJ return), whichever is less
• $300 ($600 MFJ) if the individual has qualifying income of $3000 or a tax liability of at least $1 and gross income greater than (probably) $9200 ($18,400 MFJ)

In plain English, most people will be getting a check for $600 ($1200 if MFJ).

Additional child credit

On top of the rebate described above, taxpayers with children under age 17 (those eligible for the child tax credit) will also get a rebate of $300.

Thus, a family of four can expect a total credit of $1800, before the income phaseout.

Qualifying Income

Qualifying income is comprised of earned income (mostly wages and self-employment income), Social Security benefits, and veterans' benefits

Income Phaseout

The income phaseout reduces the entire credit (taxpayer plus child) by 5% of the amount that the taxpayer's AGI exceeds $75,000 ($150,000 MFJ).

As an example, suppose a MFJ couple has two children and AGI of $180,000.  Their credit before phaseout is $1200 + $300 + $300, or $1800.

Their AGI exceeds $150,000 by some $30,000.  5% of $30,000 is $1500.  That would leave them with an allowable credit of only $300 ($1800-$1500).

2007 and 2008 Interaction

Here's where it really gets confusing.  Even though this refundable credit is computed against 2008 tax liability, it will be issued in advance as a check using data from 2007 tax returns.  A taxpayer's situation may change from 2007 to 2008.  If that's the case, the taxpayer wins no matter what.  If they are owed additional credit when filing their 2008 return, they get it.  If they got a bigger check then their 2008 tax liability would allow, then they get to keep the difference.

Some taxpayers not required to file an income tax return (most Social Security recipients come to mind), will have to do so in 2007 in order for the IRS to have the data to issue their check.

Comments

[jerry]

if we are married and we usually have to file injured spouse, then with this rebate do we get the entire 1200 or does the government take it or require us to do some kind of injured spouse form to get our rebate???

[John]

There is one important point left out of this page and even the IRS summary, but found on the house.gov pdf for families with children on the border of having the $600/$1200 taxable income to get the full credit for the adults. The regular child tax credit of $1,000 per kid (1040 line 52) is NOT included in that tax liability, so this makes some with a $0 tax bill still eligible for the full $600 per adult (if I understand correctly, and I am not a professional on the topic).

[Ryan Ellis]

That's an excellent point, and absolutely correct. Not sure how I missed it. It would explain how a couple of clients are due to be getting larger rebates than I thought they were.

[Janine McCann]

In a divorced situation in which the children reside 100% with the custodial parent who files as head of household; yet it's the non-residential parent who claims both children as dependents on his tax return due to sitpulations of a divorce decree, which parent is eligible for the child credit?

[DENNIS TOMMASULO]

My father passed away in 2007 his wife is a widow, in normal circumstances she could file a married filing jointly return for 2007, can she do that and be eligible for $600?

[DENNIS TOMMASULO]

My father passed away in 2007 his wife is a widow, in normal circumstances she could file a married filing jointly return for 2007, can she do that and be eligible for $600?

[Nancy Sims]

I have not read anywhere about private pension income ( not railroad) for retires on social security. Does the private pension income count as wages in this calucation?

[Michael Laverty]

Does anyone know where these rebates are,on the irs website for example it says that ss# ending in 0-20 will be sent out no later than 4/28 however a family member of mine falls into that category,has direct deposit and as of 5/5 has still not recieved anything.I also find it both strange and typical that not one News station has anything to say about it.Can anybody comment?

[Josh]

My wife is a stay at home mom and when i did my taxes we got the Addtional Tax credit, do we still get 1500
we filed MFJ so that makes 1200 plus our son who is 1 thats 300. When i did the online calculator it said only the child tax credit and i had to put 0 making us get 900. is that correct im not sure how it works. I have only seen - 1200 for MFJ and 300 for east qualifying child is it as simple as that or are there exceptions with additional child tax credit and my wife is a stay at home mom. Thanks for you Time.