The Tax Rebate-Who Gets it and When
Thursday, February 21, 2008SUZANNE PRATT: People expecting a stimulus check from the government will soon learn exactly when their check will be in the mail. Next week, the IRS will post a payment schedule based on the last two digits of a person's Social Security number. The agency will begin sending out tax rebates in early May and will send them out once a week through July. Acting IRS Commissioner Linda Stiff says in most cases taxpayers won't need to do anything extra to get their payments.
LINDA STIFF, ACTING COMMISSIONER, INTERNAL REVENUE SERVICE: They have to file their tax return this year just like they otherwise would. They don't have to fill out an application. They don't have to fill out another form. They don't have to call the IRS or request a payment. They just have to file their tax return. The IRS will do the rest.
PRATT: Joining me now with some additional information on those tax rebate checks is our tax expert Kevin McCormally. He is editorial director of "Kiplinger's Personal Finance." Kevin, welcome back to the program.
KEVIN MCCORMALLY, EDITORIAL DIR., KIPLINGER'S PERSONAL FINANCE: Thanks Suzanne.
PRATT: So, let's start with the basics, who gets it and how much.
McCORMALLY: The basic thing is most people will get $600 or $1200 for married couples plus a $300 bonus for every child under 17 at the end of 2007, that's the key year 2007. That is the basic rule.
PRATT: OK, so who is not getting it, I guess is the other way of looking at it. Who is going to be unhappy?
McCORMALLY: Well, the unhappy taxpayers are a couple of groups. One are people who make too much money and as far as the IRS is concerned -- sorry as far as Congress is concerned, you make too much money if your AGI on your 2007 return is over $75,000 on a single return or over $150,000 on a joint return. Above that level the rebate is squeezed until it disappears. The other unhappy group are people who owe money to the government, back taxes or are behind on child support or student loans. The IRS can intercept their rebates. The other thing is people who, and this is sort of what Commissioner Stiff said, a little bit of a misnomer. She said nobody has to do anything. There are 30 million people that were added by the Senate, low income people who don't have to file a tax return for 2007. But they do have to file one if they want a rebate. Now the IRS has come up with a special form that is a 1040 form but if you go to their web site, it shows exactly how to fill out that form, just to put a minimum amount of information on it so you get a reduced rebate. If you don't have to file anyway, you can get a rebate of $300 or $600, less than the $6 and $12 the taxpayers have to get but something for those lower income non- taxpayers.
PRATT: Is there anything that you can do to expedite receipt of this check? Does it matter if you get your return in early?
McCORMALLY: Well, not really. I mean the IRS has said they're going to have this lottery, this two numbered lottery that they are going to post. And that is good. The way to speed it up though is if you have your refund direct deposited on your 2007 return. The IRS will direct deposit your rebate check too, so that will speed it up by a week or so. Around 60 million people last year had their refunds direct deposited. I'm sure at least that many will do this year. And if you haven't been in the past having your refund direct deposited, it will not only get your tax refund faster but will also get your tax rebate faster.
PRATT: We've also been getting a lot of viewer questions regarding whether the rebate has any affect on next year's 2008 refund. Does it?
McCORMALLY: A lot of concern about that because you know Congress calls this a 2008 tax cut but they are prepaying it with 2007 returns. Most people will have no impact whatsoever in 2008. The people who do see an impact next year, it will be good news because this is really a heads you win - tails the IRS loses deal. If you get more money this year than you deserved based on your 2008 income, say you get a big raise this year and your income goes over 150, if you already got your money based on your 2007, you get to keep it and alternatively if your income is too high this year to get a rebate and your income is lower next year, you can claim your rebate next year. If you have a child this year, you can get part of your rebate next year based on your 2008 return. There will be a special form in those packets that if you didn't get the full rebate in 2008 based on your 2007 return and you deserve more based on your 2008, you will get the money next year.
PRATT: Is this money in any way taxable?
McCORMALLY: Absolutely not. It is tax-free. They're calling it a tax refund, a tax rebate, but it's tax free money. A lot of people think it is going to be taxable. They think there's some trick here. It's not a trick. The government wants to put this money in your pocket so you can go out spend it and stimulate the economy.
PRATT: So what is your best advice for people who do get this rebate? What should they do with the money?
McCORMALLY: Well, you know, it really depends on your economic situation Suzanne. I think people are deep in debt, struggling with that mortgage payment we heard about earlier, probably should pay their mortgage. A lot of credit-card debt, should pay that you off. At Kiplinger we think that probably a third of the money will be either used to pay off debt or save for a future rainy day. The other two-thirds will be spent, higher gas prices will take a lot of it. And I think some people will be buying big screen TVs to NIGHTLY BUSINESS REPORT.
PRATT: Good news for us. Kevin, thank you, thank you for joining us.
McCORMALLY: Thank you, Suzanne.
PRATT: My guest evening, Kevin McCormally of "Kiplinger's." And Kevin will join us for our annual "Tax Tips" series beginning March 10 and every Monday night, he'll have advice for filers and he'll answer tax questions on our web site.
