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Stimulus Bill Misconceptions

February 8, 2008 - by Donny Shaw

From reading through the comments section for H.R.5140, the economic stimulus bill that Congress just passed, there seems to be some confusion about what the tax rebates will mean for peoples’ 2008 tax returns. Specifically, people are wondering if the rebate check will be taken out of their 2008 tax returns and if they will have to pay taxes on the checks next year. I took a look at the tax mechanisms at work in the bill and drew some conclusions.

First, no, the rebate checks will not be taken out of the refund amount you receive in 2008. This is a misconception that probably stems from a CNN article that, earlier today, erroneously implied that the rebates would be borrowed from next year’s tax returns. The article has since been revised.

The bill works by reducing the tax code’s 10 percent bracket on the first $6,000 of taxable income to zero for 2008. That 10 percent of the first $6,000, $600, will come back to you as a check in advance, probably sometime in May. That check will basically be a “prebate” on a temporary tax cut that will be enacted next year. So, since the new zero percent tax on the first $6,000 of your income will have already been taken care of, when you go to file your taxes in 2008, everything will seem normal and you will be eligible for the same refund amount as always. The rest of your income will be taxed as usual.

Note that, even though the rebates will be worked into the tax code for 2008, eligibility will be based on 2007 income levels. As long as your income is $3,000 or above in 2007, you are eligible for a rebate of at least $300.

This brings us to the second question — whether you will have to pay taxes on the rebate checks as if they were regular income. Again, the answer is “no.” Since the rebate checks are simply advances on a future expansion of how much of your income is tax-free, they are essentially federal tax refunds and won’t be considered “income.” Since federal tax refunds are not deductible, they are never treated as taxable income.

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Comments

  • Anonymous 02/08/2008 4:56pm

    Can someone comment on if and when a couple with AGI over $150,000 in 2007 but AGI well under $150,000 in 2008 receives money?

  • Anonymous 02/13/2008 8:20pm

    You would get it with your tax return for 2008, when you file in 2009, but not in advance.

  • Anonymous 02/13/2008 10:02pm

    Those who make too much money will not have to pay tax on their first $6000 of income when you file your 2008 taxes.

    You get the same $600 break everyone else does, you just don’t get it in the form of a rebate check.

    NOTE: A family of four will get a rebate check of $1800….however when they file taxes next spring, they will only receive a $600 tax break…they will end up paying back $1200 of the “rebate”.

  • Anonymous 02/14/2008 6:01am

    We aren’t “paying back” the rebate – we are just reaping an early tax break. We COULD wait and get the tax break next year but the PTB feel that we need it now.

  • Comm_reply
    Anonymous 03/05/2008 7:44am

    I disagree, we are getting it for 2007 taxes (too late to change tax forms) and it will more than likely become part of the form for 2008 and beyond

  • Anonymous 02/14/2008 9:02am

    I am a working father, my wife stays home w/ our only child (21 months old). She did not have an income last year and my salary is no where near the $150K cut-off. Will we receive a single $600 or a family $1200 check?

  • Anonymous 02/14/2008 9:40am

    Rebates for married couples are based on a joint return. So if you and your spouse together earned $100,000 and paid more than $1,200 in taxes, you’ll get a rebate for $1,200 for your “individual” credits — even if one spouse earned a lot less than the other or even none at all…

  • cypheir 02/14/2008 2:42pm

    Bush is really smart. Smart in the sense that American’s believe this is gonna do something to, “stimulate,” the economy. This bill is a farce, and we’re about to slip into a depression worse that 1929.

    Hope you people are getting ready…

  • Comm_reply
    Anonymous 03/05/2008 7:47am

    That’s funny “chicken little”, all the economic indicators, show that coupled with the stimulus and the lower prime rates we will see a tick in the opposite direction…. therefore “the sky is NOT falling”

  • Comm_reply
    Anonymous 04/29/2008 7:17am

    who do you think puts out these so called economic indicatars. your stupidly and blindly following the media.CYPHEIR is right, i hope your ready to eat some crow.

  • Anonymous 02/19/2008 6:51pm

    Where is the amount going to be reported on the 2008 return and why

  • Anonymous 03/06/2008 5:05pm

    What will be impact on state income tax? Will that be considered 2008 income and subject to state income tax?

  • Anonymous 04/25/2008 10:14am

    The money for this stimulus package is not falling out of the sky folks. This is cash that is having to be printed to cover this expense.

    What happens when the Fed prints more cash?

    The value of the dollar drops. It’s a 1:1 relationship.

    Even if you THINK you are not paying for this tax rebate, you are… in the worst way possible. By devaluing your salary over the next year!

  • Comm_reply
    Anonymous 04/29/2008 7:21am

    you are are so right, i am glad to see a few other people in the world understand this. not only does inflation go up, but the money is printed as we borrow from other countries to so called back this valueless money and then we all the money goes to other countries that actually made the junk we buy. so now we have inflation and more national debt, and nothing but junk to show for it. i hope my childrens future is worth some clothes and cd’s to you stupid people.

  • Anonymous 05/03/2008 3:18am

    It is, thank you. But actually it’s gonna be a motorcycle, not clothes or cd’s!!!!

  • Anonymous 01/03/2009 10:24am

    Ok now I just went to calculate my tax Refund estimate on HR Block website AND!!!! there is a space to fill in what you received for your tax rebate in 2008 AND!!!! we will be paying back the ENTIRE amount that we got…Go Ahead and check for yourself on HR Block. Example if you were supposed to get 1000.00 refund for 2008 tax filing…it will deduct the amount you received on your rebate check 600.00 for most people so you will only get back a 400.00 refund!!!!!!!!! Oh hell yes we are going to be paying this all back and then some.

  • Anonymous 01/03/2009 10:24am

    Ok now I just went to calculate my tax Refund estimate on HR Block website AND!!!! there is a space to fill in what you received for your tax rebate in 2008 AND!!!! we will be paying back the ENTIRE amount that we got…Go Ahead and check for yourself on HR Block. Example if you were supposed to get 1000.00 refund for 2008 tax filing…it will deduct the amount you received on your rebate check 600.00 for most people so you will only get back a 400.00 refund!!!!!!!!! Oh hell yes we are going to be paying this all back and then some.

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