Stumbulis Rebatus/Creditorandum Esoterica

[les grans]

Is the 2008 economic stimulus credit a reduction of my federal income tax, or is it a payment against my 2008 income tax? Thinking ahead, I'm trying to see what my 2008 income tax would be for purposes of making "safe harbor" 1040-ES quarterly tax payments for 2009.
And, oh, yeah, this is quite hypothetical so don't get all wound up in it. Like I am.
If - for whatever reason - I don't get the check/prebate during 2007 but then I qualify for the credit against my 2008 taxes based on my 2008 tax return, does that credit on my 2008 tax return function like withholding - refundable if in excess of tax, but only *pays* the tax, doesn't reduce it - or does it function like a business/education/EIC/whatever credit, and reduce the tax itself [in addition to being refundable (I think)]?
Like, if my 2008 tax is $2,400 before the stumbulis rebatus creditorandum, say the credit is $600 for illustration, does the credit reduce my tax to $1,800, or is it just counted as part of my payments against the $2,400 tax? I'm sure someone has thought this through...

[JohnH]

What?

We're talking about the US Government and our polticians here. Why would you think anyone has thought anything through in Washington? Neither side of the aisle is capable of thinking past November, nor do they care to do so.

[les grans]

Why, John, your undisguised cynicism is appalling. Appalling with two p's...!
How can you say Capitol Hill is not motivated to analyze and understand the footnotes to the footnotes to the footnotes of the legislation that gets passed into law while they're playing with their Blackberries....
If you read the explanation of the rebate legislation, you'll note that Congress has declared the credit/refund *not* to be taxable income. Based on what, I ask? <<more undisguised cynicism.

[JohnH]

Undisguised cynicism?
Based on how I really feel about most of these characters, I was actually being obtuse.

As for cynicism, no matter how cynical I become about politicians, I just can't seem to keep up with reality.

[les grans]

Headline: "In Politics, Reality Outstrips Cynicism"

[Bees Knees]

Like, if my 2008 tax is $2,400 before the stumbulis rebatus creditorandum, say the credit is $600 for illustration, does the credit reduce my tax to $1,800, or is it just counted as part of my payments against the $2,400 tax? I'm sure someone has thought this through...

Actually, peeling away all the Cynicism...it is a good question.

Assuming you do not get the advance refund but instead take the credit on your 2008 return, the law says the credit is a refundable credit. That puts it in the same category as EIC, excess FICA, and the Federal Fuels Credit.

If you look on the 2210, you will notice refundable credits are reported on a separate line than federal withholding. In essence, refundable credits do the same thing that nonrefundable credits do for purposes of calculating the proper estimated tax payments that should be made.

[les grans]

Hey Bees, thanks for reading my stuff through the distracting miasma. And special thanks for seeing the question buried in there...
But wouldn't excess FICA be like a cash payment against the tax (rather than a refundable credit that reduces the actual tax but is also refundable)? It's, like, withholding, all the way. And maybe the fuels credit, too.

[Bees Knees]

No, refundable credits are not treated the same as federal withholding.

Look at the 2210.

Line 1 is tax from line 57.
Line 2 is other taxes such as SE tax.
Line 3 is all refundable credits, including excess FICA and federal fuels credits, entered as a negative.
Line 4 is lines 1 through 3 combined, which equals current year tax subject to the estimated tax rules.

Withholding does not enter the picture until line 6, after the $1,000 rule and the 90% rules have been calculated based on the result from line 4. The refundable credits reduce tax subject to estimated taxes exactly the same way non-refundable credits do.

[les grans]

I think that excess FICA may be *called* a refundable credit, but it's treated as a payment. See line 3 of the Form 2210. Line 3 has "refundable credits" excluding withholding and excess FICA, doesn't it?
I think we may have a definitional problem here. The EIC is considered a "refundable credit" and it reduces "total tax". See line 3 of Form 2210. Excess FICA - and withholding, too, for that matter - are under the category "Refundable Credits" in the IRC, but they certainly don't *reduce* your "total tax", they only pay it. See line 6 of Form 2210.

Where I'm going is that I think the "credit" that's allowed for the EIC is *different* from the "credit" that's allowed for withholding. But the IRC describes them very very very very similarly. Sec IRC sections 31 and 32...

Obviously, I'm struggling with this. Don't ask why, okay?

[les grans]

The problem is with the EIC. Look at page 2 of Form 1040 where it's clearly identified as a "payment". Now look at Form 2210 - and the Internal Revenue Code - where it's clearly described as a "refundable credit". Can't have it both ways.

We all know that the EIC reduces "the income tax" and we all know that federal income tax withholding doesn't reduce the tax, it pays the tax. So why are they in the same place - and described pretty much the same - in the IRC?

But back to the original question: is the 2008 economic stimulus refund rebate credit that will be on the 2008 tax return a credit (reduces the tax) or a payment (pays the tax)?

[bertrans]

The problem is with the EIC. Look at page 2 of Form 1040 where it's clearly identified as a "payment". Now look at Form 2210 - and the Internal Revenue Code - where it's clearly described as a "refundable credit". Can't have it both ways.

We all know that the EIC reduces "the income tax" and we all know that federal income tax withholding doesn't reduce the tax, it pays the tax. So why are they in the same place - and described pretty much the same - in the IRC?

But back to the original question: is the 2008 economic stimulus refund rebate credit that will be on the 2008 tax return a credit (reduces the tax) or a payment (pays the tax)?

I don't know the answer to your question; however, I very much liked the attempt at Latin, especially the use of the gerund!

Refundable credits are treated as payments for purposes of computing ET payments and penalty.

[les grans]

Yeah, except the EIC, which seems to be treated as a credit reducing tax sometimes, and a payment paying off the tax at other times...
..................gerund..........? ...........ablative..............?

[veritas]

Catchy title

kind of reminds me of "Illegitimis nil carborundum"

[veritas]

The problem is with the EIC. Look at page 2 of Form 1040 where it's clearly identified as a "payment". Now look at Form 2210 - and the Internal Revenue Code - where it's clearly described as a "refundable credit". Can't have it both ways.

We all know that the EIC reduces "the income tax" and we all know that federal income tax withholding doesn't reduce the tax, it pays the tax. So why are they in the same place - and described pretty much the same - in the IRC?

But back to the original question: is the 2008 economic stimulus refund rebate credit that will be on the 2008 tax return a credit (reduces the tax) or a payment (pays the tax)?

If I understand the code section,It is a credit against 2008 tax IRC 6428(a) or a payment against 2007 IRC 6428(g)(1).

[JohnH]

How much is the damage?

Assuming a $1,200 rebate amount, if it turns out not to be creditable against estimated tax payments for some reason, aren't we talking about $ $50 in estimated tax penalty at most?

Unless you're counting on the $1,200 to meet a safe harbor requirement on a large increase in 2008 tax liability, in which case I wouldn't take the chance no matter what answer we came up with here.