Will a refund affect my rebate?
Speaking of refunds, some folks have expressed concern that if their 2007 return gets them tax money back, they won't get a rebate check. Not to worry.
"Your refund has nothing to do with it," says Scharin. "The rebate is treated as if you gave the government extra money and then it is sending it back to you. It's sort of like extra withholding."
In fact, although the rebates will be determined by your 2007 tax filing data, the money actually is officially an "advance credit payment" against your 2008 income. So it has no bearing on your 2007 taxes, whether you owe or get a refund.
And that leads to our last frequently asked question, or rather questions.
What will the rebate mean to my 2008 taxes?
Will I owe taxes on my rebate amount next year? What if this year my situation changes and that means my rebate amount should be less?
For most filers, says Luscombe, this year's rebate will appear as a simple gift from the government. The rebate amounts are tax-free.
But filers will have to reconcile any money they receive this year when they file their 2008 returns.
"It harks back to the 2001 situation when we got the new 10 percent bracket and got an advance check for that. Then on next return had to account for it," says Luscombe. "It's expected to be that way this time."
The 2008 tax forms should have a line for the new credit. When calculating taxes next year, taxpayers will have to subtract what they got as a rebate check the previous summer This doesn't mean you'll have to pay back the rebate amount you get in 2007. It just means that since you got it early (i.e., the summer of 2007), you can't claim it again on your 2008 return.
"Some people might think that's unfair," says Luscombe, "but they got the money, and they got it early."
One thing taxpayers won't have to worry about is giving back any excess if their 2008 taxes show that the advance this year was actually more than they should have received.
"If it turns out that credit on your 2008 return is greater, you get to take that additional amount," says Luscombe. "If it's lesser than what you got in 2007, you don't have to refund that back to government." The law says the IRS can't recover the extra payment by reducing your 2008 refund or adding to your 2008 tax bill.
Rebate-boosting tax moves
Because the law is technically an advance credit on 2008 taxes, taxpayers essentially get two shots at maximizing the extra tax money.
Since there are still a few weeks left in the 2007 filing season, you have time to tweak your 2007 returns to enhance the rebate amount. And if that's not viable now, you have the rest of this year to take some tax steps that could maximize the rebate/credit on 2008 returns you'll file next year.
Consider, for example, a taxpayer now working on his 2007 return. He has no earned income so he is not eligible for the rebate. Neither does he get Social Security, which would trigger a rebate check. But he does have unearned income and is planning to use deductions and credits to reduce the tax due on those earnings to zero or less. He might want to reconsider that usually advantageous strategy.
"The provisions get pretty tricky here, but people in this situation might want to take a close look at the law and consider not taking every last penny of the deductions and credits they're entitled to, in order to qualify for a rebate," says Luscombe. Ideally, the taxpayer in this income situation also has rebate-eligible children. By creating a tax liability -- a few dollars is enough -- he would get that small tax amount back along with the child rebate bonus.
"A dollar or two tax liability is probably not worth it, but two kids means $602 in rebates," says Luscombe. "As long as you have a tax liability, even on unearned income, you'll get a rebate up to that liability."
At the other end of the rebate scale, taxpayers whose 2007 income was just above the phaseout limits should look now at ways to reduce their 2008 income. This will give them another chance at rebate/credit money they're missing now.
Something as simple as increasing 401(k) contributions, says Scharin, could bring down your adjusted gross income enough to get more rebate money. You also might look at selling assets that would produce a capital loss.
Either way, if you get your rebate in a few months, enjoy what you receive this year. And if you're able to get a bit more on your 2008 returns, be sure to take advantage of it then, too.