Congress recently passed the Economic Stimulus Act of 2008.
It's designed to inject $152 billion into the U.S economy.
What does this mean to you?
You could be one of the 130 million taxpayers who will
receive a rebate check this year.
If you own a business, your business can take advantage of
two tax breaks: Increased Section 179 Amounts and Bonus
Depreciation. For more information relating this this
topic, please see my recent article: "How the New Tax Law
Can Help Your Business: Two Tax Breaks for Businesses.
If you own or invest in real estate, you may find some
relief with your "jumbo" loans.
ARE YOU GETTING A REBATE CHECK?
There are two groups eligible to receive rebates. You can
only be in one group so if you qualify for both, be sure to
pick the group that results in the higher rebate amount.
Group 1: Those who paid taxes in 2007.
Group 2: Seniors, disabled veterans and widows of veterans.
Those specifically excluded from the rebate pool include
nonresident aliens, estates, trusts and dependents
(dependents only have to qualify as a dependent and need
not be claimed as a dependent in order to be ineligible).
WHAT IS THE MAXIMUM POSSIBLE AMOUNT OF YOUR REBATE IF YOU
ARE IN GROUP 1?
Keep in mind that these are the maximum possible rebate
amounts and may not necessary be the amount you ultimately
receive due to limits and phase-outs.
If you paid taxes in 2007, the maximum amount of your
rebate is:
$600 for individual filers
$1,200 for joint filers
Plus, add an additional $300 per qualifying child to your
maximum possible rebate amount. There is no limit on the
number of qualifying children!
Example: If you are a joint filer with two qualifying
children, your maximum rebate amount is $1,800 ($1,200
basic rebate + $600 for two qualifying children).
WHO IS A QUALIFYING CHILD?
If you're familiar with the child tax credit definition,
that same definition applies here. There are several
requirements:
- A qualifying child must not have attained the age of 17
as of the close of the calendar year.
- The qualifying child must be the taxpayer's qualifying
child for purposes of the dependency exemption.
- The qualifying child must be a son, daughter, stepson,
stepdaughter, or descendant of such child, or a brother,
sister, stepbrother, stepsister or a descendant of such
relative.
Don't forget, your maximum possible rebate amount may be
reduced due to limits and phase-outs. Read on to find out
if your rebate amount is impacted.
WILL YOUR REBATE BE LESS THAN THE MAXIMUM POSSIBLE AMOUNT?
If you're in Group 1, your rebate amount may be less than
the maximum possible amount due to limits and phase-outs.
First, the amount of your rebate is limited to your 2007
tax liability. This means if your maximum possible amount
is $600 and your 2007 tax liability is $575, then $575 is
the maximum rebate your can receive.
Second, the rebate amount phases-out based on income levels.
The rebates start to phase-out when:
- A single person's 2007 adjusted gross income is greater
than $75,000
- A married filing joint couple's 2007 adjusted gross
income is greater than $150,000
If you're over these limits, then your rebate amount is
reduced by 5% of the amount exceeding the adjusted gross
income threshold.
WHAT DOES THIS PHASE-OUT REALLY MEAN?
Here is a formula you can use to determine your rebate
amount:
Step 1: Determine your Maximum Possible Rebate amount
Step 2: Determine your 2007 adjusted gross income (AGI)
(You can find this on your 2007 tax return).
Step 3: Is your 2007 AGI greater than $75,000? ($150,000
if joint filer)
If you answered no, you're done! You'lll receive the
maximum possible rebate amount. If you answered yes,
continue to Step 4
Step 4: Calculate your "Excess AGI." Your 2007 AGI -
$75,000 ($150,000 if joint filer) = Excess AGI
Step 5: Calculate your "Rebate Reduction." Excess AGI x
5% = Rebate Reduction
Step 6: Is your Rebate Reduction amount greater than your
Maximum Possible Rebate amount (from Step 1)?
If you answered yes, then your rebate amount is $0. If you
answered no, then your rebate amount is:
Maximum Possible Rebate - Rebate Reduction = Your Rebate
Amount.
Here are a few examples.
Example 1:
A married couple with no qualifying children and 2007 AGI
of $175,000:
Step 1: Maximum possible rebate amount is $1,200
Step 2: AGI is $175,000
Step 3: AGI is greater than $150,000 so continue to Step 4.
Step 4: Excess AGI is $25,000 ($175,000 - $150,000)
Step 5: Rebate Reduction is $1,250 ($25,000 Excess AGI x
5%)
Step 6: Rebate Reduction amount ($1,250 from Step 5) is
greater than Maximum Possible Rebate amount ($1,200 from
Step 1) so the rebate amount is $0.
Example 2:
A married couple with 1 qualifying child and 2007 AGI of
$175,000:
Step 1: Maximum possible rebate amount is $1,500 ($1,200
basic rebate amount + $300 for 1 child)
Step 2: AGI is $175,000
Step 3: AGI is greater than $150,000 so continue to Step 4.
Step 4: Excess AGI is $25,000 ($175,000 - $150,000)
Step 5: Rebate Reduction is $1,250 ($25,000 Excess AGI x
5%)
Step 6: Rebate Reduction amount ($1,250 from Step 5) is
NOT greater than Maximum Possible Rebate amount ($1,500
from Step 1) so the rebate amount is $250. ($1,500 -
$1,250).
WHAT'S THE MAXIMUM AMOUNT OF YOUR REBATE IF YOU ARE IN
GROUP 2?
For seniors, disabled veterans and widows of veterans, the
maximum amount of the rebate is $300 for individual filers
and $600 for married couples filing jointly.
To qualify for the rebate in Group 2, the individual must
have either:
At least $3,000 of any combination of earned income, Social
Security benefits and certain veterans' benefits (including
survivors of disabled veterans), or
Net income tax liability of at least $1 and gross income
greater than the sum of the applicable basic standard
deduction amount and one (two if a joint return) personal
exemption ($8,950 for singles, $17,900 for joint filers).
Unlike Group 1, Group 2 doesn't have any phase out or
additional limits. As long as the taxpayer meets one of
the two requirements above, the maximum rebate will be
issued.
HOW CAN YOU CLAIM YOUR REBATE?
If you file a 2007 income tax return (that's the tax return
due April 15, 2008), the IRS will calculate the rebate
amount for you and will send it by mail or direct deposit
without your having to take any further action.
If you don't file a 2007 tax return but still qualify for a
rebate because of your earned income level, combat pay, or
receipt of Social Security benefits, the IRS has promised
to announce how you will get on the rebate list.
WHAT IF YOU EXTEND YOUR 2007 TAX RETURN?
Because the rebates are based on your 2007 return, if you
file your return after April 15, 2008, your rebate will be
delayed. For example, individuals on extension this year
who do not file their 2007 return until the extended
October 15, 2008 deadline will not receive their checks
until year-end. No checks will be sent after December 31,
2008.
Read about the benefits of extending your tax return.
After 2008, those who missed out on the rebate or received
only a partial rebate get a second shot at qualifying with
2008 data when they file their 2008 return in 2009. This
group includes those who did not receive a full $600/$1,200
check either because their 2007 income was either too low
or too high, or they did not receive a full $300 child
credit because their income was too high or a child was
born or adopted in 2008. They get another chance to claim
the difference based on their 2008 tax return filed in
2009. If a taxpayer would have received a smaller rebate
check if based on 2008 return information rather than his
or her 2007 return, however, the taxpayer is not required
to give back the difference.
WHEN WILL YOU RECEIVE YOUR REBATE?
Congress has directed the IRS to issue rebate checks "as
rapidly as possible." No specific date has been released
yet, but it's likely that the process will start in May.
The government is also likely to utilize direct deposit as
much as possible rather than issuing paper checks. Overall,
the government will have to issue or deposit more than 130
million checks, so the rebate process will take some time.
When we learn how the government intends to issue the
checks, we'll let you know. Also, if you owe any federal
debts or unpaid child support, the government will apply
your rebate to that debt.
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Tom Wheelwright is not only the founder and CEO of
Provision, but he is the creative force behind Provision
Wealth Strategists. In addition to his management
responsibilities, Tom likes to coach clients on wealth,
business, and tax strategies. Along with his frequent
seminars on such strategies, Tom is an adjunct professor in
the Masters of Tax program at Arizona State University. For
more information, please visit
http://www.provisionwealth.com
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