According to the Internal Revenue Service, 15% of 2008 income tax returns that have been filed already have errors involving the recovery rebate credit. Here is what the government wants you to know:
Some tax returns erroneously claim the credit, do not claim the proper amount of recovery rebate credit or mistakenly enter the amount of the stimulus payment they received on the recovery rebate credit line. To avoid delays in tax refunds, it is critical that taxpayers know the correct amount of the stimulus payment they received last year, if any, to help determine whether they qualify for the recovery rebate credit now.
The “recovery rebate credit” is what you will receive as part of your tax refund or a reduction to the amount you owe if you didn’t qualify for or receive the full economic stimulus payment in 2008.
There is still much confusion, particularly among people who file their taxes online or with software that offers a “running total” of the refund or amount due. After taxpayers correctly enter the amount they received for their stimulus payment on the line marked “recovery rebate credit,” they see their refunds drop by the amount they enter.
The immediate reaction is to believe that taxpayers are paying back the money they received for the stimulus to the government. That is not true. The reduction is due to the fact that before you entered your recovery rebate credit, it was $0, so the software believed the government still owed you the stimulus rebate. You can only receive it once, so if you received a credit in 2008, you won’t receive it now.
But that does not mean you’re paying it back. Without the economic stimulus and recovery rebate credit (again, they’re the same thing), your final tax bill or refund would be the same as it is now, if you complete your tax forms accurately.
In the IRS’s words:
Q. Will the payment I received in 2008 reduce my 2008 refund or increase the amount I owe for 2008?
A. No, the stimulus payment will not reduce your refund or increase the amount you owe when you file your 2008 tax return. The combined amount you received in the form of an economic stimulus payment plus any additional amount you receive, if any, in the form of a recovery rebate credit is independent of the normal tax you would have paid.
Here are some more points from the IRS.
Taxability. The economic stimulus payment is not taxable and it should not be reported as income on the 2008 Form 1040, 1040A or 1040EZ.
Refund delays. IRS personnel are aware of reports that errors in claiming the recovery rebate credit could delay tax refunds for as much as eight to 12 weeks. These reports are false. As the IRS detects and corrects return errors concerning the recovery rebate credit, refund delays are currently no longer than about one week.
One payment. In addition, the IRS notes taxpayers will receive a single refund that includes any recovery rebate credit to which they are entitled. The IRS will not be issuing separate recovery rebate credit payments.
Refund amounts. The IRS reminds taxpayers they should not use their regular refund from last year in calculating the recovery rebate credit. Some taxpayers may be confusing their regular tax refunds with the economic stimulus payment they received when completing their 2008 tax return.
Direct Deposit Requests. Taxpayers who request a direct deposit will receive the refund in the form of a direct deposit even if errors are detected.
Want to get your specific questions answered? Call the IRS Recovery Rebate Credit hotline toll-free at 1-866-234-2942.
Updated March 21, 2011 and originally published February 2, 2009.