Tuesday, February 19, 2008

Figuring Out My Tax Rebate

Making the simple complicated is commonplace; making the complicated simple, awesomely simple, that's creativity. - Charles Mingus

The quote describes how I feel about the tax rebate. Ever since the rebate was proposed, it hasn't been clear to me how it worked and how much I would receive. The IRS has recently published information on the stimulus payments , which have helped me figure out my situation...I think.

Here are the key points I found in the information:

  1. The 2007 stimulus payment is really a rebate against 2008 tax liability. The 2007 payments will be based on 2007 tax returns and reconciled in the 2008 return. If a higher rebate is owed based on the 2008 return, then the IRS will send an additional payment. If a lower rebate is calculated based the 2008 return, the IRS will not require a pay back from the tax payer.

  2. To qualify for a 2007 stimulus payment, a taxpayer needs to file a 2007 return, have over $3000 of "qualifying income," and not be eligible to be claimed as a dependent. Qualifying income includes wages, net self employment income, Social Security payments, certain Railroad Retirement benefits, veteran's benefits, and non-taxable combat pay if elected as earned income. To note, interest, dividends and gambling winnings are not qualifying income. If the taxpayer qualifies for a larger rebate based on 2008, they will need to file a 2008 return.

    The rebate begins phasing out for an AGI over $75,000 (single filers) and $150,000 (joint filers) at a rate equal to 5% of the amount over the AGI, e.g. $50 for each $1000.

  3. The amount of the basic payment is the maximum of 2007 net income tax liability or $600 individual filers or $1200 joint filers. As long as the taxpayer had qualifying income over $3000, they will receive a minimum of $300 single and $600 joint. For purpose of the basic tax rebate, net income tax liability excludes the child tax credit, equaling line 57 plus line 52 on the 1040, line 35 plus line 32 on the 1040A, and line 10 on the 1040EZ.

  4. Taxpayers who qualify for the basic payment may receive an extra $300 for each qualifying child under age 17.

After reading through the documentation, here are my conclusions on calculating our tax rebate:

  1. I need to have over $3000 of qualifying income to get the minimum basic payment of $300 for single filers and $600 for joint filers. In addition, I may get an additional $300 for each child under 17, who is qualified for the child tax credit. I must file a tax return in order to qualify for a rebate, even if I otherwise did not need to file.

  2. If I have over $300 (single filers) or $600 (joint filers) of net tax liability (line 57 plus line 52 on the 1040, line 35 plus line 32 on the 1040A, or line 10 on the 1040EZ), then I will receive either the maximum of my net tax liability or $600 (single filers) or $1200 (joint filers). In addition, I may get an additional $300 for each child under 17, who is qualified for the child tax credit.

    An AGI over $75,000 (single) and $150,000 (joint) will reduce my rebate by 5% of the amount that exceeds the limit.

  3. The final rebate will be the "better" of either the 2007 or 2008 tax return. For example, if I have a new child born in 2008, I may qualify for an additional $300, even though I had already received a rebate in 2007.
Until I read IRS memos, the two terms that were most unclear to me were "qualifying income" and "net tax liability." The IRS Stimulus Payment FAQ document did help clarify the definitions and I think I have figured out my tentative rebate.

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This is not financial or tax advice. Please consult a professional advisor.

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