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.
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Great point! Have to remember it is really our money that they are send back to us!
This isn’t income for 2008/09
can someone explain this to me? i have a friend who said he filed his taxes and received over $7000 back because of some stimulus plan which was recently signed by the president . he’s claiming that i could recieve the same return (even if i’ve already filed my taxes with h&r block and i am only receiving just over $700 in return) he says he has recieved $8100 but this seems to be so far fetched and maybe even illegal to me. have anyone heard of this?
What I have not been able to determine is, what is the elegibility for the 2008 tax credit? Is it the same as for the rebate? As someone who (luckily as some might see it) is inelegible for the rebate due to income, will the tax credit help me, or will that go in the toilet as well?
Hi,
I think that saying “the rebate that will be sent out in May 2008 is a credit to the taxes you’ll owe on 2008 income.” leaves people with the idea that this is just an advance refund and will mean less of a refund that they would have gotten otherwise in 2009. This is free money that you wouldn’t have gotten otherwise. A better way to say it is that it is a new tax credit which you are getting now and will be reflected on your 2008 return (i.e., it will show as a credit on your 2008 return, but then will be balanced by the payment that the Government has already made, for a net of $0)
Am I reading this correctly? If they give a taxpayer a rebate and then they determine that they gave him too much, they are letting him keep the difference? That is awful nice of them.
So…am I totally dense here, or does this mean you probably should put that money aside to pay taxes in 2009? At that point the amount you owe goes back to normal or maybe even rises to take account of the amount the government has dispensed from funds it needed to operate.
Not that I didn’t intend to put whatever rebate I get (and I’ll believe it when I see it) into savings anyhow…but it would be good to know if we get to keep it or if we have to hand it back over a year from now.
Personally, I think I’d rather just pay my taxes, keep the government functioning on track, and not get jacked around.
If you income/tax brackets stay relatively the same from 2007 to 2008, you will not need to set the money aside (although it is a good idea to invest it rather than spend it.)
The will be tax credits on your 2008 return that should offset the rebate you receive in May. The net effect on your 2008 return “should be” zero.
In other words, if they were not issuing a rebate in May. The credit would lower your 2008 tax liability on your 2008 return – either producing a lower amount due to the IRS or a higher refund. The rebate is just an advance payment of that credit.
I agree, keep things simple. If they want to give a credit they should just wait until you file your return to give it to you. I wonder what the administrative cost is to run this “rebate” program at the IRS instead of just letting it happen naturally on tax returns.
My understanding is that it is an advance on your 2008 taxes. Your refund for next year could be less and your payment could be more, depending on what your 2007 taxes were.
I would rather have a permanent tax reduction then this temporary relief. It does nothing but fuel a person’s material dependency and greed that will leave a hole in your soul in the coming months.
Does anyone know what the best investment would be with the tax relief?
Interesting. So one more reason to get our AGI lower on our 2007 taxes. Although, since they passed this after year end it’s a little late for most strategies to do this.
So- The government is going to give me $1800 (Married filing jointly, 2 kids)- as an “advance rebate” to my 2008 tax bill.
This year I only owe about $1600 in taxes.
What happens next year if I also only owe $1600? they gave me an $1800 advance- Will I need to pay back $200?
if i made 2,436 will ibe able 2 gt the rebate check
WOW..
Is it going to come in the mail or do I need to request it. This is kind of hard to believe that the IRS is just going to give us ALL checks. Like the other girl said, I will believe it when I see it.
Seriously, does anyone know how you get it. Do I have to go to a professional to get the money back?
HELP
I will just come in the mail. As long as you have filed your 2007 return, you do not need to do anything.
That should read “It will just come in the mail.” I personally will not be coming in the mail.
I would get a $1500 tax rebate. THe way I read it is that next year even if I owe taxes I don’t pay it. What is to stop me from maxing out my allowances on my w-4 if I don’t have to pay it back?
more bad than good in my opinion. Besides, I owe way more than what i’d get so i’ll stick to filing on the 15th.
What happens if you don’t originally qualify based on your 2007 return (due to a high AGI) but would qualify due to a drop in AGI on the 2008 return?
No, the rebate only applies to persons that made $3,000 or over in the year of 2007.
I think to simplify things everyone who had $3,000 of income from a job or social security needs to be sure to file 2007 taxes. Next, the IRS will mail you a check for the amount of stimulus money (I don’t say rebate because that seems to add to the confusion) that you qualify for based on your 2007 tax filing. Do your 2008 taxes as normal next year. If based on your 2008 tax status you now qualify for a larger stimulus check it can be claimed as a refundable credit.
As an example, in 2007 I was a full time student who was claimed as a dependent on my parents taxes (which disqualifies me from receiving the credit based on 2007 tax filings). If during 2008 my status changes so I am no longer a dependent, then when I file my 2008 taxes (in March 2009) I can claim a credit equal to the stimulus money ($600 or $300 depending on income).
Here is another example. I file my 2007 taxes jointly with my wife and had less than $150,000 in income but more than $3,000. Based on our 2007 tax filings we will receive a check for $1,200 from the IRS as our stimulus money. During the year 2008 our gross income is again within the limits and my wife gives birth to a baby (so we now have one dependent). We can now claim a $300 tax credit on our 2008 taxes because we now have a dependent.
As a final example, consider that in 2007 you file as a single filer and had income of $60,000. You qualify for $600 in stimulus money that will arrive from the IRS as a check in summer 2008. During 2008 you change jobs and get a large raise so you make $100,000 in 2008 and again file as a single person. You now technically exceed the income limit for the stimulus money, but because the government was nice you do not have to pay any of the $600 back. You simply file as normal and ignore that you even got that stimulus money.
On the flip side of this situation, if you had only $1,000 of income in 2007 but had $3,001 in 2008 you could claim a $300 credit on your 2008 taxes. In other words, if you qualify in either year you get the money (all that changes is if you get it this summer or when you file your 2008 taxes) and if you qualified in one year but not the other the IRS does not require you to pay any of it back and nothing bad happens tax wise.
I hope this explanation helps those who are confused.
I’ve heard numberous different scenarios.
1. This stimulus is not a “rebate” by definition. It is an advance. I’ve heard it will be considered income and taxable at the appropriate taxable percentage (Say %15).
2. It is an advance that will require 100% payback in 2008 taxes.
3. It is a “rebate” you are not expect to pay back.
I personally qualify for $2100.00 “rebate” and have no desire to receive this money if it’s nothing more than a one year interest free loan I will be expected to return in April of 09!
Looking forward to hearing specifics. I find it tough to believe it a “Rebate” by definition.
Scotty: Neither of your scenarios are correct, but number 3 is the closest. It is an advance, but it will not be considered income. It is simply an advance of a new credit that will be included on tax forms for 2008. You don’t have to pay it back. In fact, if you qualify for a higher credit when doing your 2008 taxes next year (thanks to a new child, for example), the IRS will send you the difference.
Most people are not getting the idea of this whole tax rebate. The money you will get is to help our economy. Basically they are giving you a “surprise” check thinking that you will just go and spend the money. Most people now-a-days are saving there money because of the rising costs. So with the “surprise” check they are pretty much HOPING you will spend the money on shopping and stuff. If you don’t except the rebate this year then they will just give it to you next year. You don’t have to pay anything back to the IRS…AT ALL EVER!! They just want money back in the economy. In my opinion it’s a stupid idea!! I LOVE MONEY but this was not a smart move from Bush.
If anyone is like me I’ll be saving it all, i plan to put it in my ingdirect.com savings account it gets about 4.1% hell of alot more then basic bank savings account.
I know that this check is an advance on a credit will appear in the 2008 tax forms/year (i.e. forms that will report income earned in 2008 and that will be filed during the 2009 tax filing season).
That said, this ‘rebate’/stimulus check shouldn’t reduce any potential refund I’d get next year, correct? If anything, it would increase same via a change in status (i.e a child born in 2008).
For example, this year let’s say I’m expecting a $2,700 refund. If nothing changed, this was 2009 and I’d ordinarily get another $2,700 refund for my 1040 (i.e. for income earned in 2008), would this then be reduced to $1,200 because of this year’s $1,500 check?
GHR5: Your second paragraph is correct. The credit advance you receive this year will not reduce your normal refund next year.
Thank you, Flexo. I’m new to your blog as of this morning. Great spot. I’ll be back often! Have a good day.
i dont think it will reduce your refund when you file your 2008 taxes in early 2009. its my understanding that if you lived in a cave and didnt file 2007 taxes, you would have a line item on your 2008 taxes to get this rebate. but the government wants us to have the money now, so they are giving it to us NOW (an advance). but if you take it now, then you cant take it AGAIN on the 2008 taxes. At that point, you go on calculating your normal 2008 refund and it would not be effected by the advance. Basically…the government wants to give us a gift on next year’s taxes, but they just want to do it NOW instead of THEN…everything else will be the same. Is this correct? This is my understanding but i am not 100% sure of this. any help?
Dave: You’re right — the only thing you missed is that if a re-calculation of the credit when you file your 2008 taxes shows that you should have received *more* (due to an additional child in 2008, for example), then you will receive the difference as a credit on your return.
I love how people think this is free money and will not have to be paid back. I understand that this rebate will not have any effects on 2008 tax refund or liability, but there are other costs. Has anyone considered the inflation that the creation of this money will cause? Well guess what, thats what it is going to cost. Plus the govenrment isn’t going to operate in 2008 with less money, so while we get it from one side they will find a way to recoup it from another. Remember, there is no such thing as a free lunch!
Let’s say you are a family of three and you get the same refund every year, $1000. So in 2007 you get $1000, in 2008, you get $1000 and in 2009 you get $1000. This is how the law changes it.
In 2009 your refund you would be $2500 thanks to the new law. Your original $1000 plus the new $1200 for you and your spouse and the $300 for your child.
Instead of the government making you wait till you file your 2009 return, they are advancing you the $1500 of that 2009 refund in May of 2008.
So when you file your 2009 taxes you will still get your original $1000 back.
Now if you have a child this year, you will add another dependant to your 2009 taxes. This will get you another $300 in your refund in 2009. Since you already received a check for all of your dependants on the forms you filled out in 2008.
So in 2008 you have 3 dependants = $1500
In 2009 you have 4 dependants = $1800
You already received $1500, so you get to claim the difference $300. Your $1000 refund will now jump to $1300.
To make it simple for math, let’s say one of your dependants dies and you can’t claim them in 2009 return. You don’t have to give back the advance you received in May. The government lets you keep the extra money.
By the way, I know in 2009 you file your 2008 return, but many people just don’t understand that and go by the year they file. So I tried to simplfy it for that reason.
You have to learn to spell in order to get the refund. This means that Bush will not recieve one either.
Apparently neither will you “dumb checker”… it’s recEIve. :)
What kind of credit is this new 2008 credit? Example:
Suppose Tax Table says the Tax is $900.
With 2 children the “Child Tax Credit” offset is $2000, which brings the Tax Due to $0. The “Additional Child Tax Credit” amount is $1,200 but is applied after the “Tax Due” is figured along with $95 already withheld for a total refund of $1295. The “Child Tax Credit” is figured under “Taxes and Credits” while the “Additional Child Tax Credit” is figured under “Payments”.
1. Is the new Credit going to be figured off of the “Tax” amount before other credits to determine eligibility.
2. Is the new Credit going to be applied before or after the “Total Tax” (example. 2007 1040 line 63) total is figured.
Knowing “where” this knew “Credit” will be applied on the 2008 Tax forms will help us know what to expect.
In signing the stimulus package, did this eliminate the current child tax credit of $1000 for tax year 2008?
I was wondering if your 2007 tax refund was offset for child support will the rebate be offset as well?
Moe: There’s no legislation that I know of to eliminate the Earned Income Tax Credit.
kimm: If you receive child support, it will not be considered when determining your earned income for the purpose of the calculator.
if you make at least 3000 in income, including social security benefits , you will be eligible for 300 per individual, 600 for mfj staus. If you had any tax liability up to 600 for individual, 1200 for mfj, you will get that amount. also for any child who qualifies for the child tax credit and is your dependant you recieve 300 per child. Now, next year when you file your taxes there is going to be a new credit applied to tax liability that you wont actually get. But you will not have to pay any of the stimulas refund back. maybe this will help clear things up.qualifying social security does not enclude ssi.
So, it this tax credit a way to stave off a recession until the Democrats get into office?
OK, so just to make sure that i’m understanding this correctly.
We are a family of 3, married filing jointly, with 1 child. WE recieved a refund of around $1500 this year, for the 2007 tax refund.
So, in May we will get $1500 (according to what are income is in 2007 adn having a child)
So when we file our taxes in early 2009 for the 2008 tax season, then there will be a line for the tax stimulus package. IF we get a check in May (or there abouts) then in 2009 when we file our 2008 returns, we will still get our regular $1500 (or so give or take) refund in 2009??? (unless of course we add a new tax credit by having a child or buying a home in 2008, in which case we get more in our returns) . So, they are basically spliting up our tax returns for the 2008 tax year, and sending us the extra now, and then our regular refund in early 2009? Am i understanding this correctly. So, we will get a refund in 2009, and the “rebate” we get in May will not be subtracted from our normal refund we would be intitled to in 2009, due to over withholding from our paychecks? Correct??
Ok.
Just found new info on IRS website with examples. Finally.
The eligibility is figured on Tax liability BEFORE the Child Tax Credit is applied.
Still don’t know if the New Rebate Credit shows up as a positive number, on the final 2008 returns, figured under the Payments section or if it is figured under Credits and Taxes, like the Child Tax Credit, to achieve a not less than 0 Tax Amount.
Quick question, please:
My husband receives Social Security disability benefits (NOT SSI). Because these are not taxable they are not reported on our tax returns so will this income be included in the calculation for the rebate?
Question,… If my only income in 2007 was from Unemployment (Taxable and definately was taxed) and also from closing out my retirement and the seriously taxed me on that too. I also had a small paycheck from my employer. Only like 200 dollars but all added were more than 3,000 dollars.
My question is, would I qualify for the rebate or the new credit in 2009 ( for 2008 tax year) ??
For everyone curious about whether they’ll receive the rebate and how much, please use this calculator, paying close attention to the detailed instructions.
Betsy, the answer is yes.
Instead of getting $3000 next year, you will get $1500 of it in May and your regular $1500 next year.
hmmmm.. I wondered because they wouldn’t let me clain earned income on my children except for the 200 dollars I made from my employer. So I didn’t understand if I would actually get the new credit on unemployment and my retirement. I still dont understand why they wouldn’t credit me but yet they could tax it. But, whatever. Government!
Does the stimulus plan contain provisions to eliminate the 10% tax bracket, the lowest tax bracket, to zero percent for one year only?
still sounds like an advance on next years refund (if applicable) to me!!
I have looked everywhere and I can’t find the answer…..Someone at work told me that we will have to pay a tax of 41% off of this tax rebate? Is this true? Do you pay tax on a tax refund??
confused: generally, don’t believe what you hear around the water cooler unless you work for a tax accountant. You won’t owe any federal tax on the rebate/credit you receive. There is more complete information on the post containing the calculator.
Our money is already spent on doctor’s bills. This whole thing is just a diverson to get the angry voters off the backs of both houses of congress. This will stimulate the economy about as much as an aspirin will stimulate the libido!
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