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How the Economic Stimulus Tax Rebate Will Affect 2008 Tax Returns (Updated January 26, 2009)

This article was written by in Taxes. 140 comments.


This article is for tax year 2008. For 2009 and beyond, see our roundup of 8 (or more) Ways to Benefit from the American Recovery and Reinvestment Act of 2009 (AKA Stimulus Plan).

If you’re trying to understand the recovery rebate credit or why it seems like you owe your stimulus back to the government, please read this article about the stimulus payment and the comments in green. Also consider subscribing to Consumerism Commentary to receive updates about the economic stimulus.

Welcome to the readers who are coming to Consumerism Commentary searching for information on the tax stimulus package passed by Congress yesterday and presented to President Bush today for his final signature. A number of readers who have been visiting the rebate calculator are wondering how this rebate will affect tax returns when filing 1040 forms for 2007 and 2008.

Updated March 18, 2008.

First of all, there will be no effect to 2007 tax returns. The “rebate” that will be signed into law next week is actually an “advance” on a new credit that will be presented on 2008 tax returns.

In April 2009 or thereabouts, when you file your taxes for 2008, the IRS will run the calculation for the stimulus rebate again. If the results show that you would have received more (due to an additional child, for instance), you will be sent 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.

To summarize, the rebate that will be sent out in May 2008 is a credit to the taxes you’ll owe on 2008 income, but it is a new credit, so you don’t have to “pay it back.”

Here two important things to remember:

TurboTax is Easy, Free Edition, Fast Refund

  • In order to receive the rebate in approximately May 2008, you need to file your 2007 tax return.
  • The amount of the rebate is calculated using your earned income; if you earned over $3,000 in 2007, you’ll be eligible, but if you had an adjusted gross income of over $75,000, then the rebate will be reduced by 5% of your overage.

March 18, 2008 Update: The IRS has released a schedule estimating when you will receive your rebate.

January 26, 2009 Update: You may be wondering why it seems like you need to pay the IRS back for the stimulus payment you received in 2008. You don’t. The “recovery rebate credit” is for those who didn’t receive a stimulus check in 2008 or received less than they qualify for now. You don’t owe more money than you would have otherwise, if there had not been an economic stimulus plan, even if it appears that way. Read this article about the recovery rebate credit to understand more.

Updated March 21, 2011 and originally published February 8, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 140 comments… read them below or add one }

avatar Damien

Well bummer.

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avatar topeka

Your friend is worthless and should get a job and stop being a drain on the rest of society.

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avatar magic

if i recieved only half of what i was supposed to get in the stimulus rebate, would i be getting the other half? or would it just balance out even.. basically what im saying is i only got half and since , i only got half do i have to pay it back since im eligible for the other half…

which would make my income tax return just like normal…

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avatar matt

Well what a rebate! The goverment failed to tell the taxpayers that the credit they recieved in 2008 will be taken away from any tax refund in 2008 taxes. For example i started my taxes today and there was a question that asked how much i recieved in the rebate program. I recieved $300. When finished with taxes I felt the return was low and went back and checked that I did not recieve a rebate and calculated again and the refund was $300 larger, so uncle sam is taking back his “rebate”. I don’t understand, every article I have come across has said you don’t have to pay it back, but in the end you DO!

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avatar Luke Landes ♦127,500 (Platinum)

Matt: The government is not taking back the rebate, it’s just not giving you two. The stimulus payment and the “recovery rebate credit” are the same. You already received your check in 2008, so you’re not receiving the credit (again) in 2009. Just because you felt your return was low doesn’t mean that you’re receiving less that you are supposed to. Of course your *refund* would be higher if you calculated again saying you didn’t receive the credit last year. But you did receive it last year, so you can’t get it again this year.

Yes, the government did a poor job of enacting this credit in a way most people would understand. But it is a simple concept. You can’t receive the credit twice.

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avatar leah

The way they are telling things on this site is wrong!!! I have done my taxes already and how they explained it to me is totally differnet than what they are printing. You are paying these rebates back, they are also makingn you claim more on you return than what you actuallyn got. My rebate i recieved was 600 dollars, my husbnd received 300 dollars, they sent our return back stating that it was wrong, we had to claim what we COULD HAVE RECEIVED like for 3 dependants is900 dollars and my husband could have recieved 600 dollars based on our income so thats what they are making us claim takin off 1500 dollars for these tax rebates. If it was going to be used against us in the end why did they send these rebates to us.

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avatar Luke Landes ♦127,500 (Platinum)

Leah: Sounds like you need a better tax accountant. Whoever “they” are who told you this are completely wrong. The information is plain and simple on the form instructions published by the IRS. This site is helpful as well. Good luck!

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avatar Ellen

I am sorry I should have said we recieved $1200 last year and now we should recieve $1500, right?

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avatar Becky

What I don’t understand, is why the state thinks they can get paid from our rebate check. Just did my taxes with Liberty Tax Service, and they said there is a handful of states, Oregon included, that are deducting the amount we received for our rebate check ($1200 for us) from our tax return this year. We can usually receive around $1400 back from state, but this year we are barely getting back $200 because of the rebate check. WTF?! Can someone please explain how it is right that we are being taxed on a tax credit? I was told by the tax service that because of this, some people will actually owe money to the state.

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avatar erick

If you are paying in for taxes you don’t have to pay back the stimulus you received. (you don’t owe more $ than your taxes)

But if you are getting a refund you will get less than expected because you have already gotten it months ago.

Seems a little unfair to me

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avatar Luke Landes ♦127,500 (Platinum)

Erick: That’s not an accurate statement. In terms of the economic stimulus/recovery rebate credit, there is no difference between those who owe taxes after filing their return than those who will receive a refund, other than the obvious. The only difference is between people who received their full economic stimulus payment in 2008 and those who did not.

Andrea: You’re probably right. I know I tried to get out the word that the economic stimulus payment was just an *advance* on a new tax credit, but the government didn’t do a good job of communicating and explaining to the public. In all, over the course of the last year and tax returns filed this year, the payment was above and beyond normal taxes, but it doesn’t appear that way to many people.

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avatar Oracle

Please clarify for me.
The company I worked for closed and so I had to do just any work I could find.
However I still didn’t net enough money in 2007 to qualify for a stimulus check.
If I do find that I net enough wjen I file my 2008 return, will I receive the stimulus check offered for the 2007 return?
If so, will it be as a refund on my 2008 return?
Or will I not receive anything at all?.
I am confused.

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avatar Luke Landes ♦127,500 (Platinum)

Oracle: If you now qualify for the stimulus (called the “recovery rebate credit” on the 2008 returns), you will receive the stimulus as a form of an addition to your tax refund (or a decrease to the tax you owe).

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avatar michele

If I didn’t do research on this, I would still be clueless to how the stimulus check worked. The way the govt explained the stimulus package to me is totally different than what I am finding now, now that I am preparing my taxes. This should have been explained clearly to citizens as to that it was an advance on our tax refunds for 08. I never heard that spring of 08. If I would have known that, I would have done something different with the money.

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avatar Ricer46

Wrong michele,
It turns out that the “rebate” was merely an interest free loan. A $600 rebate results in having to pay an additional $600 in taxes this year unless you earn more than $75K.

Ed. note: This comment is incorrect.

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avatar Luke Landes ♦127,500 (Platinum)

Ricer46: I suggest you read the post at the top of this page and my above comments (in green). People who received a stimulus check last year DO NOT have to pay “more” taxes. It is the people who did NOT receive a stimulus check who are eligible to receive that stimulus as a part of their refund (or to reduce the amount of tax they owe).

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avatar Ricer46

No, you’re going to have to pay the $1200 back!

Ed. note: This comment is incorrect.

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avatar CONFUSED

I am confused. Last year my wife and I received a refund of around $900 from my 2007 return. Our income has not changed this year (everything is exactly the same) but after filling out our 2008 return and putting in the amount of the Economic Stimulus check Turbo Tax says that I owe $55. Before I put in the amount of the Stimulus check my refund was $854. Tell me how this is possible if the Stimulus check is not being deducted from my refund.

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avatar Luke Landes ♦127,500 (Platinum)

Confused: There are a number of ways that is possible. There are more variables that come into play than your income. Take your taxes to a professional if you have questions about your particular tax return. Most importantly, are you sure that was your *refund* not the stimulus check that was $900 last year? Basically, what you’re saying that that your refund *and* your stimulus check were both $900 last year. If not, you are either comparing apples with oranges or you entered the wrong amount as your *stimulus amount* in this year’s tax return.

Entering $900 as your stimulus payment in the form will result in your supposed refund dropping $900. Until you enter $900 on that line in Turbo Tax, the software assumes you didn’t receive a stimulus payment, which according to your note, you did. Ignore Turbo Tax’s calculations until you are done entering everything on your tax form.

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avatar confused

My 2007 refund was $900. My wife and I received a $1500 Economic Stimulus check ($600 for myself, $600 for my wife, and $300 for our son) later that spring so $900 was not the stimulus check. I am not complaining because I will not have to pay back the extra $600. I am just stating that the money received from the stimulus check reduced my 2008 refund. I have been using turbo tax for about five years now because our tax return is fairly simple so I don’t think it is anything new with my return. The CPA that did our taxes the five years before that did not find any other deductions the first year that I conpaired the two and cost around double what turbo tax costs.

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avatar Luke Landes ♦127,500 (Platinum)

Confused: Perhaps a better way to look at it is that the economic stimulus increased the money you’ve received (back) from the government overall. If the economic stimulus (and recovery rebate credit) didn’t exist, you’d have the same tax bill this year, owing $55, but you wouldn’t have received the $1,500 last year. Overall, you’re not paying anything back, even if year to year, your numbers make it look that way.

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avatar Heather

My tax preparer didn’t figure my refund as being reduced because of the stimulus. The information wasn’t entered anywhere on the return, and was only used to calculate whether or not I was due a Rebate Recovery Credit. Which I was not.

Methinks you are entering the amount of your stimulus on the line that ask for how much the Recovery Rebate credit is, and reducing it as a payment already made to you.

And we all know how much trouble our new Treasury Secretary almost got into for using Turbo Tax.
I’d rather spend the extra money and make sure it’s right.

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avatar becky

I asked a question and it never showed up on here… weird. well Id like to know when people are being reimbursed if they got less than they should have in the stimulus check,
For example I got 698 but the calculator says I should have received 900. 600 for me and 300 for my daughter. I did not receive the 202 dollar difference with my regular tax refund. When would I receive it?

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avatar Tax Apprentice09

I see that there is a ton of confusion regarding taxes this year. To help simplify this problem I have included some thoughts for you to consider.

- Tax software included the stimulus rebate as INCOME which it should not be doing, this should have been fixed in many of these applications. If you are noticing that the tax rebate is lowering your tax return, then you should look for an updated application or file your taxes using the IRS tax form.

- As stated above, do not include the stimulus rebate from last year as INCOME! If you follow the 1040 closely, you will notice that if you do NOT include the stimulus from last year as income that there is no place for the stimulus to lower your return. On the line pertaining to the Recovery Rebate Credit, follow the RRC worksheet in order to determine the amount to list. The chances are that if you received the rebate last year that you will enter a 0 on this line.

- It pays to consult with a professional tax advisor/preparer because of situations like this. The IRS has rejected over 15% of returns because of these errors.

- The stimulus was an advance of the RRC that is offerred on this year’s tax form. It does not need to be paid back and is not a government scheme to rob the American people. Before jumping to conclusions get the correct information.

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avatar ricer46

That’s what I thought too initially, but it’s not so. It’s just an illusion. There are some who did not file for their rebate last year. If you did not, then you get it this year, if you did, then you don’t. Turbotax begins by assuming that you did not receive the rebate, and adds $600 to your refund. Then when you tell it that you did get the rebate. it removes it. Unfortunately Intuit does not explain this well at all, but a bit of research will turn up the proper explanation, and yours is not it,

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avatar ricer46

Yeah, I finally figured it out. Thanks.

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avatar Tax Apprentice 09

I am sorry that you feel my information is not helpful. I am trying to provide relief to those that believe they are being ripped off. I have completed a number of tax returns this year and none of them have had the problems that people on here are having. I have provided this same information to contacts that completed their taxes by themselves and they found that the online program at the time was wrong (before the updates on certain ones). If you want to get your REAL refund back, then heed the knowledge presented and double check your return instead of relying solely on a third party program (These programs are usually very reliable but the stimulus rebate created confusion in the programming).

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avatar Luke Landes ♦127,500 (Platinum)

Tax Apprentice 09: The information you’ve provided is helpful. Thank you for sharing. People continue to have questions due to the way online tax preparation software tallies the refund/bill.

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avatar Katie

Hello. I am very confused about one thing. I did not receive the stimulus payment last year(2008), so I did receive it this year. Is what I received the “rebate recovery credit”? I’ve also had a few people tell me that I will also receive later in the year 2009′s stimulus payment. Is this correct? Please someone help me! Thanks! ktnicole05@gmail.com

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avatar AnnieKnot

Help has arrived – I will have no financial worries from now on! As the woman on YouTube predicted, I don’t have to worry any more about paying for my groceries, my gas, or my mortgage!

As part of the 95% of Americans who will see their taxes reduced and thanks to the largesse of ReidBamaLosi, I am ecstatic to report that I now have $22 more each month than I have had before. What should I do first? Pay down my mortgage? Take that dream trip to New Zealand? Fund my grandkids’ college? What else can I do with this windfall of 73 cents per day? Should I start socking it away right now to start funding the future tax increases that are inevitable? That would be the patriotic thing to do, right?

For these golden opportunities, I say thank you, Jesus! No, wait, can’t say that, no reference to religion or God, bad, bad to do that. So whom do I thank? Oh yeah, forgot, thank you to my Big Brother, my Government, who now has an endless supply of funds to support me and all of my fellow citizens, and not-so citizens, for the rest of our lives. An endless supply of money just like the loaves and fishes – no, wait, there I go again with another reference to something, shudder, religious. Thank you, China! Your altruistic generosity is inspiring knowing that you expect nothing in return. Thank you to my dear grandchildren who now have the privilege of paying for this – in more ways than one – for the rest of their lives.

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avatar dunobk1

ok they say that we do not “pay back” our stimulus payment, but that is a down right lie… let me explain.. if the stimulus check was an advanced credit towards what i owe on my taxes in 2009 then its exactly that..u would think. for example i payed roughly $4,600 in taxes in 2008, after filing my taxes they figured how much i owed leaving me with a return of $3,700 ok taxes payed right and if the stimulus was simply a credit towards what i owe for 2008 then it should have been used towards that $900 that i owed to taxes.. well the last thing they do at the tax center is ask how much i got from the stimulus check, after entering that number..which was $600.. boom my tax return drops from $3700 to $3100 so if that is not paying back the stimulus payment please tell me what the heck it is. i called the irs and even they could not explain it, the “professional” on the phone said its like gettin 100 points at the start of a school class and at the end if u dont get any points taken away, then you end with zero… what is that crap someone shed some light on the situation please!!!

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avatar peggr

What number did you call to actually talk to someone? I ended up in auto-attendant hell for 20 minutes and still didn’t get to talk to anyone.

thanks,
Peg

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avatar Aimee

I agree with dunobk1. Our return dropped the EXACT amount we were “given” in that piece of crap stimulus check. I hate the government, I really do…..

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avatar peggr

We got trapped by the last “tax reduction” in takehome pay in W’s administration, because even though the withholding was reduced, our tax liability was NOT. I see this happening again. We got socked with a huge tax bill for 2008 even though we are both deducting only 1 person, have the normal homeowner and charity deductions. Is this going to get even worse with this new so called tax reduction?

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avatar Newcomer89

Hi, this is my first year filing taxes and I am new to the stimulus, I did not recieve that much back, but I was wondering will I be affected by the stimulus? Also I am no longer working. Please reply. Because I thought it was supposed to help us “Poor” people.

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avatar Damien

Did your friend purchase a new home? There is a new home buyers credit for $8000 for both 2008 and 2009 now.

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