February 16, 2008

Dear Friend,

This is a quick missive on the subject of those federal tax rebates due to the Economic Stimulus Act of 2008. These "stimulus payments," as the Internal Revenue Service refers to them, will go out through the late spring and summer.

You must file a 2007 federal income tax return. Otherwise, no rebate.

Be sure to pass this information on to folks you know whose income is so low that they don't normally file a tax return. They should probably do so this year. Seniors receiving social security benefits should definitely file a tax return, even if it's not otherwise required.

From IRS Fact Sheet FS-2008-16:

Some low-income workers and recipients of Social Security, certain veterans’ benefits and certain Railroad Retirement benefits may qualify for economic stimulus payments this year from the federal government.

Don't worry if you file your tax return after April 15.

From IRS News Release IR-2008-18:

To accommodate taxpayers who file tax returns later in the year, the IRS will continue sending payments until December 31, 2008. The IRS also cautions taxpayers that if they file their 2007 tax return and then move their residence that they should file a change of address card with the U.S. Postal Service.

Most taxpayers will receive a rebate of $300-600 for single persons and $600-1,200 for married persons filing a joint return. The higher amounts should apply if you pay at least $600/$1,200 in federal tax for 2007.

There is an additional rebate of $300 for each dependent child. Children must be under the age of 17 in 2008 to qualify.

On the other hand, children and others who can be claimed as a dependent are not eligible for the rebate, even if they are required to file a tax return for 2007.

Payments to "higher income taxpayers" will be reduced. Reductions affect individuals with tax returns showing income over $75,000 and married persons with joint tax returns showing income over $150,000.

My calculations show rebates reduced to zero for single taxpayers when income hits $87,000 and for joint filers when income reaches $174,000. The reductions are based on "adjusted gross income," line 37 on Form 1040.

Rebate checks are coming in the late spring and summer

You can relax knowing the rebates will be sent out automatically.

From IRS Fact Sheet FS-2008-15:

The vast majority of Americans who qualify for an economic stimulus payment will not have to do anything other than file their 2007 individual income tax return to receive their payment this year. They will not have to complete applications, file any extra forms or call the Internal Revenue Service to request the payment, which is automatic. The IRS will determine eligibility, figure the amount and issue the payment.

Note that if you have direct deposit on your 2007 federal income tax return, your rebate will be wired directly into your bank account. You may want to choose direct deposit of your refunds this year, even if you haven't done so in the past. You will get your money faster that way.

If you expect a check and your address changes after filing your tax return, follow the IRS suggestion to file a change of address form with the U.S. Postal Service. I recommend that you also prepare and submit Form 8822 Change of Address to the IRS. California residents should also submit Form 3533 Change of Address to the Franchise Tax Board.

Sincerely,

P.S. Tax clients will receive estimated rebate information with their completed tax returns.