Rebates revisited - how to expain to clients

[Jesse]

Does anyone know for sure whether this rebate is an "advance" of 2008 tax refund, as was the rebate several years ago, or if this is going to be "free" money?

Does anyone know if they will base this on 2006's tax returns or 2007's tax return?

As the $300/per child enters the picture I'm wondering who is going to get the rebate where divorce parents are concerned. If Mom took exemption in 2006 and Dad will now get the exemption in 2007, who will get the $300?

[KBTS]

Here is a link to an article in USA Today with some examples based on the House version of the plan. The Senate still has to take up the matter and then reconcile their plan with the House.

http://www.usatoday.com/money/economy/2008-01-24-stimulus_N.htm

According to the article, the refund will be based on the 2007 return, which is the reason the checks will not start going out until May. I cannot find any information if this is "free" money or a repeat of the "advance" from 2003 tax season. That was my first season in business and I remember the blank looks when I asked if they remembered getting a check from the government in the summer. I think the IRS website had a lookup page where you could see if they were mailed a check or not.

[JohnH]

Nobody knows for sure

Nothing can be certain until the final legislation is passed. They're still running up a few trial ballons and then waiting to gauge the reaction. These people really know how to manipulate the general public.

However, everything I read so far says it will be a straight-out payment based on the information shown on the 2007 tax return. In other words, a true rebate of taxes already paid rather than an advance payment of a tax reduction as we saw back in 2003. (Nobody is talking about a true structural tax cut for the current year, which is what caused the "Advance Payments" scheme back in 2003.) (edit-I went back & re-read the history - it was an increase in the child tax credit rather than an actual rate change. And it wasn't a bad thing, except that nobody remembered whether they received it when filing time rolled around)

Seems to me the hidden trap here will be that nobody will want to file an extension this year, because they will want to get their return filed so they can get in line for the rebate. I'm betting there will be a lot of impatient procrastinators in early April, which is why I think I'm going to make my drop dead date for extensions as early as March 12 rather than March 20.

[Jesse]

Another thought

I had a Mom in last week that received a very nice refund as she qualified for EIC. She had income of $9,000, and calculating w/ and w/out her childrens dependency exemptions made no difference in the amount of her refund, so in order to eliminate the battle w/ Dad I suggested she go ahead and sign the 8332 that he provided to her.

Now I'm thinking my a$$ will be reamed because she won't get the additional $300 rebate.

As if it's not complicated enough this is another custody issue I'm just not looking forward to.

Black Bart - it's your turn to pray for me!

[KBTS]

I had a Mom in last week that received a very nice refund as she qualified for EIC. She had income of $9,000, and calculating w/ and w/out her childrens dependency exemptions made no difference in the amount of her refund, so in order to eliminate the battle w/ Dad I suggested she go ahead and sign the 8332 that he provided to her.

Now I'm thinking my a$$ will be reamed because she won't get the additional $300 rebate.

As if it's not complicated enough this is another custody issue I'm just not looking forward to.

Black Bart - it's your turn to pray for me!

I hadn't thought about that yet. Like you said, things are already complicated enough and now this. Hopefully Congress gets this all figured out soon so we know how to best advise our clients. Maybe I'll try to stall any clients with a dependent situation with an ex-spouse (like your client) until this thing gets passed.

[John of PA]

It would have to be

Jesse,
My take on this is the refund would have to be like last time (an 2008 tax advance). How else could it be adminstered and reconciled for those who got one and should not, or those who did not get one and should.

[Gary]

My Take

The article quoted states:

"Consumers with 2007 earned income of at least $3,000 would get a rebate of $300 minimum, even if they have no income tax liability. Those with children would receive another $300 per child. In general, checks rise with tax liability up to $600 for individuals and $1,200 for couples, plus child rebates. The program starts phasing out for single filers with adjusted gross income of more than $75,000 and $150,000 for married couples filing jointly. About 117 million families will benefit."

A person with earned income of $3000 will not pay any income taxes (only payroll taxes). If you don't pay tax, how can you get a rebate. Thus, it must just be a handout.

[newbie]

The article quoted states:

"Consumers with 2007 earned income of at least $3,000 would get a rebate of $300 minimum, even if they have no income tax liability. Those with children would receive another $300 per child. In general, checks rise with tax liability up to $600 for individuals and $1,200 for couples, plus child rebates. The program starts phasing out for single filers with adjusted gross income of more than $75,000 and $150,000 for married couples filing jointly. About 117 million families will benefit."

A person with earned income of $3000 will not pay any income taxes (only payroll taxes). If you don't pay tax, how can you get a rebate. Thus, it must just be a handout.

An advance on you EIC?

[JohnH]

Not really a handout

Splitting hairs here, but a tax is a tax, regardless of whether it's a payroll tax or an income tax. So the person with a very low income has paid payroll taxes (unless it's passive income), so in a purely technical sense it's still a rebate of previously paid tax. After all, this was the original intent of the EIC before it became a welfare program with no controls.


For most of us, however, the rebate it is a relatively small refund of a part of the excessive taxes we are paying on a regular basis for a defective product, and I think it's appropriate, recession or no recession. Not nearly enough, but when you're up against the power of the nanny state trying to fund every whim of the politicians, any small victory should be savored.

[DLSINWEST]

If this does turn out to be an advance..we will have very unhappy clients..the clients that work to break even will end up owing $$$$$$$$$ not by their choice because the checks will just show up....

[BP.]

The article quoted states:

"The program starts phasing out for single filers with adjusted gross income of more than $75,000 and $150,000 for married couples filing jointly."

It's this income limitation feature that makes it seem less like an advance on 2008 refunds, because why would these taxpayers also not benefit if it were an advance?

[mblatour]

I've been following this post...

as many others have been. We all just want to know what the deal is here but are going to have to wait. I was discussing this with my husband last night and we were wondering if it was one of two things (which I suspect taxpayers out there will also wonder):

A) Is this a rebate/check that we just receive in the mail, invest/save/ and/or spend and just claim as income on our 2008 income taxes as income?

B) Is this a "loan" of sorts from what our 2008 expected refunds may be and come 2009 when we are filing our 2008 taxes we end up either owing money because we had no refunds coming, or get less of a refund at that time?

My husband and I usually get a refund due to having 2 children and claiming single zero on our withholdings (I know, many may frown on this type of behavior, but it's one way we like to put away money and there's no changing our minds at this point in time). We are currently building a new home and if we get this possible $1800 "rebate", we'd just put it into finishing our home. Not a big deal. But if someone out there does NOT normally get a refund, and they receive an $1800 check; then come the next filing year are they end up in the minus; they'll be pretty p'od I'd think.

If the checks are automatic, can people just refuse them or are they stuck taking them and perhaps depositing them into savings until a year later when they turn around and write a check back to the government to pay their bill?

Just pondering the potential situations here.......

[John of PA]

Not passed yet

This legislation is not passed yet, so it's really too early to get into it. Look for something more concrete in the President's State of the Union Speech next week, though his political enemies in DC will try to stall this thing until after the speech.

[Jesse]

are estimated to be out 1st week of May. So much for the fast fix to the economy.

http://www.nola.com/news/t-p/frontpa...800.xml&coll=1

From your link one of the Q/A:

Q: Why do some people call these payments "prebates"?

A: Because they're technically going to be credits based on tax year 2008. The government doesn't want you to wait until 2009 to get this money, so it's issuing checks now.

I copied this link and am just warning clients it could go either way!?!?

[JohnH]

It's all political

Johnof PA nailed the key point - this is all politics. We won't really know the end result until everyone in Washington holds their finger in the air, figures out which way the wind is blowing, and tries to do what will get them the most votes. Oh, and if the taxpayers or the economy happen to benefit, that would be a nice side effect.

I see a political upside and a downside to their stalling until after the State of the Union speech. The rebate concept has generated so much attention that many people will watch just to hear what President Bush says about that topic alone. If he announces the deal is done, then people will focus on how it affects them personally and the politics won't surface again until the Fall.

But if it's still up in the air he will skewer Congress for dragging their feet. (And if that happens I think he should drag them back & forth over the coals big time) I doubt his political opponents want to be on the hot seat on this one - they will never be able to successfuly push it back on him, and it will be used against them in the campaigns this year.

Interestingly, the rebate has garnered so much attention that it has almost pushed the Presidential primaries off the front page. However it turns out, it will have little impact on the Presidential race. But it's a potential time bomb for every Senator & Congressperson up for election in the fall. Each one knows he/she will have to answer for their vote on this one, including its timeliness. People care to some degree or another about what jersey their political leaders wear, but everyone is intimately familiar with their own pocketbook. Or, to quote another well-known politicial hack - "It's the economy, stupid."