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