Readers' rebate questions

Monday, Jan. 28
Posted 4 p.m. EDT

Readers have rebate questions

The first question from everyone is, when? Right now, it looks like it will be, at the earliest, May. There are a couple of reasons for this.

Treasury officials say that the rebate checks can start going out 60 days after legislation is enacted. The key phrase here is "legislation is enacted." All the press conference talk last week was about an outline for the rebates. And while much of that probably will eventually become law, it's still got to clear Capitol Hill.

House Speaker Nancy Pelosi, who was in on shaping the rebate framework, is expected to drop a bill in the hopper soon, possibly even this afternoon when the House reconvenes. Senators, who weren't part of the drafting, say they also will get legislative language on paper, probably next week. Any differences in the two bills, and most expect there to be some, will have to be worked out. Only then can a final measure, passed by both legislative bodies, be sent to Dubya to be signed into law.

Meanwhile, the agency that will have to deal with whatever law is enacted already has its hands full. The IRS is in the midst of an already confusing filing season, what with its computer reprogramming tasks delayed by the late passage of alternative minimum tax changes. The agency says around 3 million to 5 million folks won't even be able to file their 2007 returns until Feb. 11.

So even If Congress passes a bill quickly, adding rebates to the mix might just be too much. "The IRS' systems are today fully engaged in processing 2007 returns," according to the Joint Committee on Taxation. "As a result, it is not practical to contemplate distributing cash rebates until the peak filing season is completed, which in past years has been the very end of May." Plus, says the committee, the federal government can only print nine million checks each week.

Tax inquiring minds want to know: OK. We accept, grudgingly, that we'll have to wait a bit, both for details on the rebate program and the actual checks. But that doesn't keep us from having questions. Here are some that Bankrate readers have asked, along with the answers we have right now.

Nick wants to know, "In regards to the tax refund, and the maximum income limits, will the maximum income be based on your 2007 income or on your 2008 income? Thanks."

It looks like right now that the rebate amount will be based on your 2007 income. That's a very good reason to get your tax return in as soon as possible.

That's a change from the last time we dealt with rebates; those 2001 ones were based on the previous year's tax data. But that ultimately required some corrections on future returns, and as we all know, tax things can change dramatically from year to year. So, Nick, you'll get your rebate based on what you earned in 2007, not this year.

Todd says that he and his wife filed jointly last year, but only his spouse had income. "To get the $1200 (plus $300 for our child), does this qualify us? Or did I have to have income as well? I know the details are sketchy still, but thought it couldn't hurt to ask."

Good news for you, Todd. The consensus so far, based on examples provided in a Treasury Department fact sheet, is that the rebates depend on a married couple's joint adjusted gross income, not on how much each contributed to that income level. So as long as the missus brought in more than $3,000 and you filed a joint return, you should get a rebate.

James speaks for a lot of older folks when he asks, "How will they rebate money to those of us (retirees) that paid taxes on their income but had no earned income (stock dividends, IRAs, interest, and Social Security only)? My total income would make my wife and myself eligible but was wondering if this type of income is acceptable."

James is right is that we keep hearing about earned income (typically wages and salaries) being a key to the rebates. But the other major component is taxes paid. Many retirees tend to supplement their nontaxable pensions and Social Security benefits with unearned income from investments. Right now, it appears that retirees would qualify for the rebates as long as they paid taxes on their retirement funds and/or additional investment income. The only thing that would keep them out of the rebate loop is if their 2007 adjusted gross income is so low they don't have to pay any federal income tax.

The sad truth about any tax relief plan is that some folks get left out. The current proposal is trying to ameliorate that prospect via a $300 rebate for folks whose earned income in 2007 was less than $3,000. But some folks -- the Center on Budget and Policy Priorities estimates that about 30 million working households, including several million upper-income households that pay the AMT -- would be left out of the rebate program as announced last week.

The issue of some folks getting left out also applies to the situation raised by Susan, who writes. "Regarding the tax rebate, who is considered a child? I have three college kids who are still my dependents. Will I get $300 for each? Thanks!"

Thanks for your thanks, but you probably won't be thanking Washington when it comes to the rebate.

According to that previously mentioned fact sheet showing rebate scenarios, "All children reference in the examples are qualifying children for purposes of the child tax credit." And as parents know, to be claimed under that credit, a youngster has to be younger than 17 at the end of the tax year.

So Susan, unless your kids are early in their college careers or are prodigies attending at a younger-then-usual age, you'll probably not get an extra $900.

Susan's question, however, does raise another one: Was the child tax credit restriction used just for the examples (perhaps because for budgetary ramification figures, estimated data on the credit was easier to quickly pull out of prior returns) or will Congress expand the rebates to all children who are claimed as dependents?

I'm betting that since the first rush of excitement following the rebate announcement, this and a lot of other questions are being raised by members of Congress and their constituents.

How Capitol Hill chooses to answer them in final legislation that becomes law will be interesting. Dubya no doubt will talk tonight in the State of the Union address about about why he thinks the rebates will work to spur the economy. And we'll just have to wait and see what money-back mechanism finally emerges.