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:
- 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 @flexo on Twitter and visit our Facebook page for more updates.