February 29, 2008
Dear Colleagues,
You’ve probably heard that the government is going to be sending rebate checks to most Americans in an effort to stimulate the economy. This letter explains, among other items, who gets rebates, how they are calculated, how higher income can reduce or eliminate a rebate, and what, if anything extra, you’ll need to do to get one.
Who will receive the rebates? Only individuals get rebates. Business entities don’t get them. Nor do estates and trusts. Not all individuals, however, get rebates. You don’t get one if you are or can be claimed as someone else’s dependent. Also, nonresident aliens and illegal immigrants don’t get rebates.
Does that mean all other individuals will receive rebates? No, to get a rebate, in general, for 2007, you must (1) owe tax as computed in a special way, (2) have at least $3,000 of qualifying income—earned income generally, social security benefits, and veterans’ disability payments (including payments to survivors of disabled veterans), or (3) as discussed below, have adjusted gross income below a certain income level.
How much will you receive? A single person with no qualifying children gets a maximum rebate of $600 or a minimum rebate of $300. A married couple filing jointly with no qualifying children gets a maximum rebate of $1,200 or a minimum rebate of $600. To get the maximum, your 2007 tax (figured in a special way) must be $600 or more for a single person and $1,200 or more for a married couple filing jointly. To get the minimum, you must have at least $3,000 of qualifying income (explained above) or owe tax (figured in a special way) of at least $1. Your rebate amount will fall in between the minimum and maximum if your tax is more than $300 but less than the maximum rebate for your filing status. In that case, your rebate will be equal to your tax. For example, you are single and your tax is $500. You will get a rebate of $500.
Is the rebate increased for those with one or more qualifying children? Anyone who qualifies for a rebate in any amount gets an additional $300 for each qualifying child. To qualify, a child must be under the age of 17, live with you for more than half of the year, and be your son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, or descendant of any such individual. In addition, the child must not have provided more than half of his or her own support. Thus, for example, a married couple filing jointly with two qualified children could be eligible for a maximum rebate of $1800.
How does higher income affect a potential rebate? The amount of the rebate (both the basic and the child amount) is reduced by 5% of a taxpayer’s adjusted gross income (AGI) above $75,000 ($150,000 for joint returns). For example, a married couple filing jointly with no children has an AGI of $160,000, and net tax liability of over $1,200. Their rebate is $700: [$1,200 basic rebate - $500 phaseout (i.e., 5% x ($160,000 - $150,000)]. A married couple with no children with AGI greater than $174,000 will not receive a rebate. The AGI limit for rebates for married couples filing jointly with two qualifying children is $186,000.
What do I have to do to get the rebate check? Nothing, if you file a 2007 federal income tax return. The IRS will automatically figure your rebate based on your 2007 tax return that is due April 15, 2008. It will start sending rebate checks out in May for those who file before then.
What if you don’t have to file? Here’s where it gets tricky. Many people who normally don’t have to file a return will want to do so in order to get a rebate check. For example, an individual whose only income is $3,000 of earnings normally would not be required to file a return. Likewise, an individual whose entire income consists of $8,000 of social security benefits normally would not have to file a return. These individuals should file a tax return to show the IRS that they meet the $3,000 qualifying income threshold. They should write the words “Stimulus Payment” on top of the return they file. They will not owe any income tax as a result of filing.
Do rebates affect 2008 taxes? The rebate that the IRS will send you after you file your 2007 return usually won’t affect your 2008 taxes on the return that you file in 2009. However, it can, but only in a good way. When you do your 2008 taxes, you will figure what the rebate would have been based on your 2008 taxes. It could be higher or lower than the check that you received from the IRS in 2007. If it is higher, you will get a credit against your 2008 taxes for the difference. If it is lower, you won’t have to pay the difference back.
We hope this information is helpful. If you would like more details about this, please do not hesitate to call.
Very Truly Yours,
SOUKUP, BUSH & ASSOCIATES, P.C.
