Stimulating?

Last month Congress passed, and the President signed into law, a bill that provides many taxpayers with an advance credit for their 2008 federal income taxes. This credit, also dubbed a “rebate” or “prebate” is the centerpiece of the $152 billion Economic Stimulus Act of 2008 designed to kickstart the flagging U.S. economy.

There has been much debate about whether the rebates are wrong-headed and whether the stimulus will have the desired impact. Yes, consumer spending comprises about two-thirds of GDP, but the folks targeted by the rebates may not actually spend the cash on new products and services; many other pre-existing obligations may lay claim to their rebate checks. People have also questioned the fairness of limiting the rebate to certain taxpayers with adjusted gross income (AGI) below specific thresholds. Although this post is technically a “viewpoint,” I’m going to punt on both of the above questions and focus my energy on exactly who qualifies for the rebate and how you go about getting yours.

Credit Amount

The new law provides a refundable credit against 2008 taxes to low and middle-income individuals. The amount of the credit is calculated as the greater of:

  1. Net income tax liability, not to exceed $600 for individuals ($1,200 for joint filers), or
  2. $300 for individuals ($600 for joint filers) if the individual has either:
    1. At least $3,000 of any combination of earned income, social security benefits and certain veterans’ benefits, or
    2. Net income tax liability of at least $1 and gross income greater than the sum of the applicable basic standard deduction amount and personal exemption(s) ($8,950 for individuals and $17,900 for joint filers).

Got that? Suffice it to say that if you’re reading this, item one above likely applies.

Additional Credit for Children

Additionally, individuals who qualify for the basic credit amount are also eligible to receive a full additional credit amount equal to $300 per qualifying child with no cap on the number of child bonus payments (big families rejoice!) For purposes of the credit, the child tax credit definition of qualifying child applies. That is, the child must be less than 17 at the close of the tax year, must qualify as a dependent and must be a son, daughter, stepson, stepdaughter, or descendant of such child, or a brother, sister, stepbrother, stepsister of a descendant of such relative. Note: any individual eligible to be claimed as a dependent by another taxpayer will be excluded from claiming a rebate for him or herself. For example, college age dependents with more than $3,000 of earned income from a summer job cannot make themselves eligible for the $300 minimum credit by having their parents forego claiming them as dependent.

Eligibility

Your next big concern should be “do I get phased-out?” The law includes phase-outs for the rebate that begin at $75,000 of AGI for individuals and $150,000 of AGI for joint filers. The rebate phases out at five percent of the amount exceeding the threshold. Therefore the $600 credit for individuals phases out completely at $87,000 of AGI, while the $1,200 credit for joint filers phases out completely at $174,000 of AGI. The same phaseout rules apply to the additional credit for qualifying children as well.

Rebate Timing

If you’re still reading this Viewpoint, you must be eligible for a rebate and may be wondering how and when you’ll receive it. The IRS has indicated they will begin sending rebate checks (or direct depositing to your checking account) immediately following the crush of the 2008 tax filing season. The credit will be payable in the form of advance rebate checks paid during 2008 based on either 2007 federal income tax returns or information for the Social Security Administration or Veterans Administration. Until your 2007 tax return is filed and processed, no rebate check will be issued. If you extend and file your return around October 15, 2008, the extended due date, your rebate will be delayed until year-end. No checks will be sent after December 31, 2008.

You will, however, get a second chance after 2008 if you weren’t eligible for a rebate check. If your 2007 income disqualified you from part or all of the rebate because it was either too high or too low, you will have the opportunity to claim the difference based on your 2008 tax return filed in 2009. If, however, you should receive a smaller rebate based on your 2008 return information rather than on your 2007 return, you will not be required to give back the difference.

I have skipped several other minor technicalities of the new law that would otherwise, if described, double the length of this column. If you have questions about the tax rebate, we welcome the opportunity to discuss them or other tax questions with you. To schedule an appointment or a complimentary consultation, please contact Lisa Reynolds at (513) 792-6648 or [email protected].

Truepoint Wealth Counsel is a fee-only Registered Investment Adviser. Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A & 2B filed with the SEC, can be found at TruepointWealth.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice. The accuracy and completeness of information presented from third-party sources cannot be guaranteed.

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