How to tax economic stimulus rebate check
How to tax economic stimulus rebate check
How to tax the economic stimulus rebate check that you received last year? The deadline for tax returns is approaching, and if you need to know how to tax or how to pay taxes on the economic stimulus rebate check that you received last year, you can find the answer to your question below.
Economic stimulus rebate
Before we explain taxation implications of the economic stimulus rebate, let's summarize what the economic stimulus was about.
The economic stimulus rebate you received last year was calculated off of your last year's tax return. You had to file a tax return last year to at least think about getting any economic stimulus.
Under the Economic Stimulus Act of 2008 (HR5140), most working people got $600 if they were single or $1,200 if they filed a joint return (assuming they paid at least that much in federal income tax in 2007).
Everyone who had at least $3,000 in income from a job, self-employment, Social Security, or certain veterans benefits received a flat rebate of $300 if single or $600 if married filing jointly, even if they did not owe income tax on their 2007 tax return.
If your 2007 federal tax liability was between $300 and $600 (single) or $600 and $1,200 (married), your rebate was equal to whatever you paid in tax.
Anyone who was eligible for a rebate of any size was also eligible for an additional $300 for each child younger than 17 on Dec. 31, 2008.
People with adjusted gross income (= income from all sources before most deductions and exemptions) above $75,000 (single) or $150,000 (married) received a reduced economic stimulus check. Their economic stimulus rebate was reduced by $50 for every $1,000 they earned above the income limit. Singles with more than $87,000 in gross income and couples with more than $174,000 received no economic stimulus rebate if they got no children.
Pay taxes on economic stimulus rebate
And now the question: Do I have to pay taxes on economic stimulus rebate check? The short and simple answer is no. Read below for detailed explanation of why you do not need to pay taxes on the stimulus rebate check.
The economic stimulus rebate check that you received last year represents a tax cut in this year's tax return. By giving you the economic stimulus rebate check, the government gave you a tax cut on this year's tax return, but instead of getting the tax cut to you this year when you file your 2008 return, government just gave you sort of an "advance" of this tax credit.
Do not get confused by the fact that your last year's tax return was involved in the last year's stimulus check. Your 2007 tax return was used only to determine who gets the stimulus rebate check and how much.
To summarize, the economic stimulus rebate check you received in 2008 has no effect on your 2007 tax return. The economic stimulus rebate was actually an "advance" on a new credit that is presented on your 2008 tax return. The rebate that was sent out in May 2008 was a credit to the taxes you owe on your 2008 income. It is a new credit, so you do not have to "pay it back."
Do I need to report the stimulus rebate on my 2008 return?
The 2008 economic stimulus rebate is not taxable on your 2008 tax year tax return that you file in April 2009. You do not have to report it as income for 2008. No taxes are deducted from the rebate.
Does the economic stimulus impact my 2008 tax return?
The economic stimulus rebate check you have received last year does not impact your 2007 tax return. Your 2008 refund might be smaller than what you calculate on your return because you have already received the refund in advance.
Adjustments to the stimulus rebate
There may be some adjustments to your economic stimulus rebate check but only in the positive light.
If it turns out that you would have gotten a bigger tax rebate based on your 2008 tax return, the IRS will refund you the difference. On the other hand, if you would have gotten a smaller rebate based on your 2008 return, you do not have to pay back the difference.
In other words, when you file your taxes for 2008 on your tax return in April 2009, the IRS will run the calculation for the stimulus rebate again. If the results show that you would have received more (for example because of an additional child), IRS will send you the difference (or owe less on your final tax bill). If your results show that you would have received a smaller rebate, then you get to keep the difference.
In order to find out if you are eligible for some additional stimulus rebate, fill out the
1040 Instructions 2008, page 62
Recovery Rebate Credit Worksheet for Form 1040 — Line 70
and report your credit on
of your 1040. The extra credit (if any) is then deducted from your total 2008 tax liability.
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