Second chance for tax rebate

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More than 119 million economic stimulus checks were delivered last year. If you didn’t get any of the $96 billion that was issued or didn’t get as much as you had hoped, you might get another shot at the money this filing season.

In this tax tip:
  • Rebate questions
  • Rebate yes, taxes no
  • Your 2008 rebate credit
  • Who qualifies now?
  • Extra payout, added problems

Even some folks who did get a rebate check in 2008 could get more money this filing season, depending upon their tax circumstances.

This unusual second chance at tax money is known as the Recovery Rebate Credit. It shows up on all three 1040 forms: line 70 of the long version, line 42 of the 1040A and line 9 of Form 1040EZ.

It’s on the forms because of the way the stimulus payments, or rebates, were distributed.

The checks issued last year were based on individuals’ 2007 tax data, but the money technically was an advance credit against 2008 taxes. Congress and the president decided to hand out the cash early in the hopes that individuals would spend it and help lift the economy out of the doldrums.

That plan didn’t work as well as the politicians hoped. And the crossing of various tax-year boundaries in connection with the rebates created a lot of confusion.

Rebate questions, then and now

Taxpayer bewilderment began in February 2008, when the economic stimulus payment program was announced. The questions then tended to be about the amounts available and how a person would qualify.

Basic rebate amounts used to determine payments
  • A $300 minimum rebate, including for individuals who received at least $3,000 in nontaxable veterans and Social Security benefits.
  • Up to $600 per person, $1,200 if married filing jointly, for taxpayers with at least $3,000 in earned income, that is, wages or salary.
  • Another $300 for each child age 17 or younger claimed on a 2007 return.
  • The exact rebate amount for taxpayers with earned income depends upon the filer’s actual tax liability.
  • The rebates begin phasing out for taxpayers who in 2007 made more than $75,000 as single filers or $150,000 as married joint filers.

Those same amounts still apply to taxpayers seeking the Recovery Rebate Credit this year.

Once rebate recipients began cashing their checks last year, other questions arose.

“I started hearing about it last year. People were asking is this going to affect their taxes in 2009,” says Bruce McFarland, a tax preparer with L&R Tax Preparation in Grandview, Mo. “The closer tax time got, more questions came. Do I get more money? Do I have to pay it back?”

Rebate yes, taxes no

Let’s answer that last question first. The good news is you do not have to pay back the rebate money.

Neither do you owe taxes on any stimulus payment you received last year. The IRS says that the stimulus payment is not reportable as income on your 2008 income tax return.

Now, about the possibility of more rebate money: For some folks, the news just gets better. “If you didn’t get enough last year, you’re going to get what’s coming to you,” says McFarland.

And finally, the best news of all: If in figuring your Recovery Rebate Credit amount you find that you actually were overpaid last year, don’t worry about it. The IRS says you can keep the cash with no tax ramifications.

“If you got too much, congratulations,” says McFarland.

Figuring your 2008 rebate credit

To find out whether you are eligible for more rebate money on your 2008 return, you’ll need to fill out a work sheet, found in each of the 1040 instruction books.

And to do that, you’ll need the statement the IRS sent you with details of the amount of last year’s rebate. “I sent letters to all my clients telling them what to do, how to find that amount,” says McFarland.

However, despite the efforts of tax preparers, some taxpayers still will have problems here. “A client just called. He couldn’t remember the amount received. He didn’t have the paper from the IRS,” says McFarland. “There’s going to be a lot of that, I think.”

Robert D. Flach, a tax accountant in Jersey City, N.J., is anticipating his clientele will have similar issues. “I tell my clients in my annual January mailing to be sure to give me the notice they received from Sam regarding the amount of rebate received,” says Flach. “Even so, I expect I will make good use of ‘How Much Was My 2008 Stimulus Payment?’ at the IRS Web site, as well as the service’s online Recovery Rebate Calculator.”

The IRS’ online rebate tracking tool, “How Much Was My 2008 Stimulus Payment?“, will help you find out exactly how much you received in 2008.

Once you have that information, you can use the tax form work sheets or tax software to determine whether you’re due any additional rebate this filing season. Or you can plug last year’s rebate figure into the IRS’ online rebate calculator, which the agency says should be operational by early February. If you are not sure whether you qualify for additional rebate money on your 2008 return, the calculator will confirm your eligibility and how much Recovery Rebate Credit you may claim.

Who qualifies now?

If you got a $600 (or $1,200 if you’re married and file jointly) stimulus check last year, you probably will not qualify for an additional payment this filing season.

But taxpayers who received no rebate money last year should run the numbers to see if they now can claim the credit on their 2008 return. So should filers who got less than the maximum amount last year.

Several situations where the additional money might be warranted:
  • You adopted or gave birth to a child last year. That youngster now could get you $300.
  • You are a retiree or veteran who did not receive at least $3,000 in qualifying veterans or Social Security benefits in 2007, but did collect at least that amount in 2008. You now might be eligible for rebate money.
  • You were claimed as a dependent on a 2007 return, so you weren’t eligible last year to claim your own rebate last year even though you earned money. In 2008, however, you were no longer a dependent. You now might be eligible.
  • You did not have a valid Social Security Number in 2007 but received one in 2008, possibly making you eligible.
  • Your income level changed last year.

The income change situation works for folks who either got more or less money in 2008 compared to 2007.

For example, you received less than the full stimulus payment last year because your 2007 earnings exceeded the threshold limits of $75,000 for single filers or twice that for married filing jointly taxpayers. But in 2008, as the economy soured, you took a pay cut or were laid off. You now might qualify for additional rebate money based on your reduced 2008 income level.

At the other end of the earnings scale, perhaps you didn’t earn enough in 2007 to qualify for a rebate. However, in 2008 you did make the required $3,000. You now might be able to collect the minimum payment of $300 by claiming the Recovery Rebate Credit.

Extra payout, added problems

In some cases, the work sheets and calculators might show that, by 2008 standards, your initial payment was too much. You obviously won’t get more rebate money this year. But neither do you have to worry about that overpayment.

For example, a couple had a 17-year-old child they claimed on their 2007 return. That entitled them to an extra $300 rebate last year. But in 2008, that now 18-year-old youth is too old for the per-child rebate bonus.

“Did they get too much? Yes. Do they have to pay it back? No,” says McFarland.

Such variables and considerations might discourage some folks from applying for the Recovery Rebate Credit on 2008 returns. McFarland says that’s not a good idea. “Don’t be frightened by it,” he says. “It’s really a pretty simple credit.”

Still, says Flach, don’t be surprised to see not only taxpayers, but also the IRS have problems with Recovery Rebate Credit claims.

“The last set of rebates resulted in millions and millions of errors on 2001 tax returns,” Flach says. “I anticipate the IRS will have to deal with even more rebate-related errors on the 2008 federal tax returns.”