You have to file a return for 2007 to get the rebate!

From the Research Instititute of America reporting service:

Stimulus Act rebate checks will only be sent to those filing a 2007 tax return
IR 2008-18; Fact Sheet 2008-15; Fact Sheet 2008-16; Treasury Fact Sheet
IRS has issued a barrage of information explaining how individuals will receive the rebate they’re entitled to under the Economic Stimulus Act of 2008 (Stimulus Act). The key guidance is that individuals will have to file a Form 1040 or 1040A for 2007 to get a rebate in 2008, even if they are not otherwise required to file a 2007 return because of low income. Separately, Treasury issued a Fact Sheet carrying 28 examples of how individuals will be affected by the rebates. [For more information, you can follow this link to the IRS website: http://www.irs.gov/irs/article/0,,id=177937,00.html ]

No extra paperwork for most individuals. IRS stresses that most people won’t have to take any extra steps to be entitled to a Stimulus Act refund, which IRS will begin mailing in May of 2008, or transmitting via direct deposit, for those selecting that option when filing their 2007 returns. IRS will use the 2007 tax return to determine eligibility and calculate the basic amount of the payment. In most cases, the payment will equal the amount of tax liability on the return with a maximum amount of $600 for individuals ($1,200 for taxpayers who file a joint return) and a minimum of $300 for individuals ($600 for taxpayers who file a joint return). Parents and anyone else eligible for a stimulus rebate will also receive an additional $300 for each qualifying child. The rebates are reduced by 5% of adjusted gross income (AGI) in excess of $75,000 for individuals and $150,000 for those who are married and file jointly.

Return filing burden for lower-income individuals. Even those individuals who have little or no tax liability may qualify for a minimum payment of $300 ($600 if filing a joint return) if their tax return reflects $3,000 or more in qualifying income, which consists of earned income (e.g., wages, net self-employment income) as well as Social Security or certain Railroad Retirement benefits and veterans’ disability compensation, pension or survivors’ benefits received from the Department of Veterans’ Affairs in 2007. Many of these individuals normally wouldn’t have to file a 2007 return because their incomes are below the filing thresholds, but they will have to file a return in order to receive a rebate.

Where necessary, the following benefits (in any combination) must be reported on Line 20a of Form 1040 or Line 14a of the Form 1040A to meet the qualifying income requirement:

    • Social Security benefits reported on the 2007 Form 1099-SSA, which individuals should have received in January 2008. Those who do not have a Form 1099 may estimate their annual Social Security benefit by taking their monthly benefit and multiplying it by the number of months during the year they received the benefits.
    • Railroad Retirement benefits reported on the 2007 Form 1099-RRB, which should have been received in January 2008.
    • The sum of veterans’ disability compensation, pension or survivors’ benefits received from the Department of Veterans’ Affairs in 2007. Individuals may estimate their annual benefit by taking their monthly annual veterans’ benefit and multiplying it by the number of months during the year they received benefits.

IRS cautioned that Line 20a of Form 1040 and Line 14a of the Form 1040A are designated for Social Security. To qualify for the economic stimulus payments, these lines should also be used to include any qualifying Railroad Retirement or veterans’ benefits.

    RIA observation: Although IRS said it would work closely with the Veterans Dept., Social Security Administration, and key beneficiary groups to ���get the word out��� to lower-income individuals, undoubtedly many will not be aware of the new filing requirement and may not receive the rebate they are due.

When an amended return will have to be filed. Those lower-income individuals who filed a 2007 tax return reporting at least $3,000 in qualifying income don’t need to do anything else to get their stimulus rebate. However, others may have to amend a previously filed tax return (using Form 1040X) to include benefits to reach the $3,000 qualifying income level, for example, benefits such as Social Security payments that weren’t taxable under the Code Sec. 86 rules. IRS stressed that adding these benefits on an amended tax return won’t increase an individual’s tax liability but simply will establish eligibility for the stimulus payment.

Exclusions. IRS reminded individuals that:

    • Those who file Form 1040NR, 1040PR or 1040SS are not eligible for stimulus payments. These returns are normally filed by Nonresident Aliens, residents of Puerto Rico and residents of the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI). Residents of U.S. possessions will be receiving their rebates directly from the possessions.
    • Those who can be claimed as dependents on someone else’s return aren’t eligible for stimulus payments.
    • Dividends, interest and capital gains income is not included when determining qualifying income. Supplemental Security Income (SSI) does not count as qualifying income for the stimulus payment. Also not included in qualifying income are non-veterans or non-Social Security pension income (such as those from individual retirement accounts (IRAs)).
    • Stimulus payments will be subject to offset against outstanding tax and non-tax liabilities in the same way as regular tax refunds.

In addition, the IRS emphasized the stimulus payments will not count toward or negatively impact any other income-based government benefits, such as Social Security benefits, food stamps and other programs.

Expect notices from IRS. Most taxpayers will receive two notices from IRS (presumably after they have filed the 2007 return). The first will be a general notice explaining the stimulus payment program. The second will confirm the recipients’ eligibility, the payment amount and the approximate time table for the payment. Taxpayers are told to save the second notice to assist them when they prepare their 2008 tax return next year.

    RIA observation: When they file their 2008 return in 2009, taxpayers will need to (1) calculate the amount of the rebate credit based on their 2008 tax return, and (2) reconcile that amount against the advance rebate payment they received based on their tax situation as reported on their 2007 return. For many taxpayers, the two amounts will be the same. If, however, the amount in (1) exceeds the amoun
    t in (2) (because, for example, the taxpayer paid no tax in 2007 but is paying tax in 2008), the taxpayer will be able to claim that amount as a credit against 2008 tax liability. If, however, the amount in (1) is less than the amount in (2) (because, for example, the taxpayer paid tax in 2007 but owes no tax for 2008), the taxpayer will not have to repay the rebate amount to IRS.

IRS also advised individuals who move after they file their 2007 tax return to notify the IRS by filing Form 8822, Change of Address, and also notify the Post Office.

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Recovery Rebates on their way IF you file a 2007 tax return

If and when you file an income tax return for 2007, the US Treasury will be able to send you your Recovery Rebate check, if you qualify.

These rebates will work in much the same way as the increased child tax credit did a few years back. The 2007 tax returns are being used to determine who qualifies, and is therefore sent, a rebate check. Next year’s Form 1040 for 2008 will include a calculation to see how much of a rebate you should have received. If you didn’t get it all this year, you’ll get the balance when you file your 2008 income tax return. If you don’t qualify when doing the calculations on your 2008 return, don’t worry…you won’t have to pay it back.

All rebates have to be mailed out during 2008; if you don’t file a 2007 tax return, you can get your rebate on your 2008 income tax return filing.

Who qualifies? Anyone who files a tax return and pays income tax in 2007, or if not paying income tax, has earned at least $3,000, will qualify for the rebates. If you have more than $75,000 of adjusted gross income per taxpayer on a return, (two taxpayers with $150,000 on a married, filing jointly tax return) the rebates will be phased out by 5 cents for every dollar above that limit.

For example, say you are married with three children and you have adjusted gross income well over the $150,000 limit. Do you qualify? Take the initial rebate calculation of $1,200 for the married, filing joint return plus $300 per child or $2,100 total potential rebate (1200+300+300+300). Divide $2,100 by 5%, which is $42,000. You can have up to almost $192,000 adjusted gross income ($150,000+42,000) before you lose the benefit of the recovery rebate. I say almost because in order to preserve $1 of the recovery rebate, you need to be $20 less than that upper limit. So if you earned $191,080, you would keep $1 of the Recovery Rebate.

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Wait until February 6th for the Tax Rebate rules…

After Tuesday, February 5th, “Super Tuesday”, we’ll probably have an answer to the final “Tax Stimulus” package that promises tax rebates. The campaigning is getting in the way of finishing agreement on this tax bill.

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Latest Debate on Tax Rebates…

On Jan. 24, Congressional Democrats and Republicans and President Bush reached an agreement on a bipartisan stimulus package aimed at immediately jumpstarting the slowing economy. The House stimulus package will include:

    • Rebates. Rebate checks will be computed under two separate calculations, with an overall phase-out for those with adjusted gross incomes above $75,000 for single taxpayers and $150,000 for married couples. Rebate checks will include a base amount determined under the greater of two options:
        • income tax paid in 2007, with a maximum of $600 for a single taxpayer and $1,200 for married couples; or
        • $300 for an individual and $600 for a married couple, if the individual or couple earned income of at least $3,000 in 2007.

      The rebate check calculation will also include a children’s bonus. Anyone qualifying for the base amount will also receive an additional $300 per child, with no cap on the number of children. A total of 117 million families will receive rebate checks.

    • Bonus depreciation. The bill will provide for 50% bonus deduction on new equipment in the year it’s placed in service, with certain exceptions for equipment with a “long life.” The temporary tax cut will affect depreciation on new property with a depreciation period of 20 years or less. It’s estimated that the bonus depreciation, coupled with expensing measures enacted in May 2003, will result in a 4% increase in business spending in the first 6 months.
    • Section 179 expensing. This bill will allow employers, including small businesses, to fully expense $250,000 in both new and used tangible property in the year it’s purchased with an overall investment limit of $750,000. (Under current law, taxpayers can expense up to $128,000 for 2008 with an overall investment limit of $510,000.)
    • Government Sponsored Enterprises (GSE)/Federal Housing Administration (FHA) Conforming Loan Limit. The conforming loan limits for both FHA and GSE (such as Fannie Mae and Freddie Mac) loans will be increased.

The stimulus bill will includes no spending on unemployment insurance, transportation infrastructure, food stamps, or Medicaid. It’s expected that the House will approve the stimulus initiative quickly. Floor consideration of the package is likely on Jan. 29.

Meanwhile, Senate Finance Committee Chairman Max Baucus (D-MT) said that the Finance Committee will mark up its own stimulus bill next week—one different from the House’s. Baucus indicated that the Senate bill might include extending unemployment insurance, increasing food stamps, and additional business incentives. Expressing his intention to work quickly, in a bipartisan manner, Baucus stated that he thought the Finance Committee would complete its work by the time the House sends a bill to the Senate.

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Update on the Mortgage Insurance Deduction

Earlier I mentioned that there is now an itemized deduction for Mortgage Insurance premiums paid on mortgages financed during 2007. Since writing that paragraph, Congress has extended the mortgage insurance deduction for two more years, through 2009.

If you are a first time home buyer, or a home buyer with little or no down payment, you may now have a choice of either paying for mortgage insurance on one loan, or taking out two mortgage loans, one for the downpayment. Both the interest expense AND the mortgage insurance are deductible now, but only for new mortgages entered into in 2007, 2008 and 2009 at this time.

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