Stimulus Payments...

[gordywest]

I apologize in advance, BUT, I know I am fielding a bunch of questions this week since the payments are coming out starting Monday. What I read basically says that it is an ADVANCE on next year's refund...

1st) I am assuming that if Client X is supposed to receive $2000 as a refund for the 2008 return and they got $1200 stimulus payment, then they would only receive $800 refund. Is this your understanding as well?

2nd) But what if they OWE next year? Same example but Client X owes $2000 and receives a stimulus payment of $1200...will they now owe $3200?

I know it's NOT free money...any responses would be greatly appreciated!

[Mike Mac]

It basically is "free" money

Taxpayers will NOT have to deduct the stimulus payment they rcv in the next couple of months from their 2008 refund nor add it back to their 2008 liability. As a matter of fact,
if their circumstances change from 2007 to 2008, they may even be eligible to get a stimulus payment next year.

[les grans]

"Taxpayers will NOT have to deduct the stimulus payment they receive in the next couple of months from their 2008 refund" or so you say.
But their refund next year could be that much larger if they can't or don't get a stimulus predate in the next couple of months.
It's all double talk; the rebate is either a payment to them this year or a reduction of their tax bill next year. Not both!! I'm struggling to understand how thnking people can say that "this money" - whatever it is - comes out of thin air and doesn't reduce next year's refund. Next year's refund would be larger if the payment isn't made this year.
In the law it's a credit reducing 2008 taxes which *will not reduce* 2008 taxes - your refund will be smaller!!- if it is - as is provided for by the very same law - paid to the eligible taxpayer ahead of time.

[BOB W]

My understanding it that this is a stand-alone rebate. It will have no effect on next year's refund>>AT ALL.......................

[Bees Knees]

Yes it does affect 2008.

Without the new law, assume the 2008 refund would have been $2,000.

Now assume with the new law the taxpayer gets an additional $1,200.

If the taxpayer receives the $1,200 this summer as an advance refund, the 2008 refund remains at $2,000.

If the taxpayer receives $600 this summer as an advance refund, the 2008 refund is $2,600.

If the taxpayer receives nothing this summer as an advance refund, the 2008 refund is $3,200.

Now here is the interesting part...If the taxpayer receives $5,000 this summer (while only entitled to the $1,200), the 2008 refund is still $2,000.

In other words, the 2008 refund will never be less than what it would be without the new law, even if the taxpayer receives more this summer than he or she is entitled to.

[JohnH]

I fail to comprehend why this is to difficult to understand. The law is very clear, and even the IRS web site is very straightforward. As Bees just stated, he ONLY effect the rebate will have on 2008 taxes will be to INCREASE the 2008 refund for a small number of taxpayers who didn't qualify for a full rebate based on their 2007 filing.

It won't reduce anyone's 2008 refund or increease anyone's tax liability, unless perhaps some people filed fraudulent claims (and I suspect even those won't be pursued).

[Koss]

Taxpayers' lack of comprehension

I'll throw in my two cents here...

The misunderstanding revolves around the assertion that the rebate "will have no effect" on next year's tax return or tax refund.

It has an effect because it has to be accounted for.

The rebate is not taxable income, and it is not "subtracted" from the refund on the 2008 tax return. But as others have correctly observed, in some cases, the rebate will be added to the 2008 refund. Some taxpayers will be eligible for a rebate on the 2008 return, particularly if they did not receive it during the summer.

The problem is this:

Based on the claim that the rebate has no effect on the 2008 tax return, some taxpayers may fail to properly account for the rebate that they receive in the next few months. This is most likely in the case of do-it-yourself software, but will also happen in some storefront settings where the client has never met the tax pro before, and will probably never meet him or her again. The client will simply tell the tax pro that they didn't get a rebate during 2008, even though they did, because someone--either their tax pro from last year, or their sister-in-law, or the bartender at the local watering hole--told them that the rebate "doesn't have to be reported" on your 2008 tax return.

So when they do their own return using TurboTax or TaxCut, or they go to a tax pro who only asks the question once, while doing the return real-time, and never looks back...

the software will add the rebate to the refund, because the software thinks they didn't get it. But they did get it, and they can't get it again. The IRS will catch this and treat it as a math error.

The outcome, in many of these cases, is that the actual refund the guy receives could be $600 or $1200 less that what is reflected on the 2008 return, or even worse if there are qualifying children involved.

Tax pros will be on the receiving end of some very angry clients. Explaining to them that the reason the refund was reduced is because they gave the tax pro inaccurate information about their rebate won't help them understand the issue. They will still feel that they are somehow getting screwed, either by the tax pro or by the IRS, because "the rebate doesn't have to be reported or paid back."

If it doesn't have to be reported or paid back, why did the IRS deduct it from their refund?

Don't get me wrong. I understand it. But there are some clients who will never understand, no matter how it is explained, that their refund was artificially inflated by the fact that they did not accurately account for the rebate they received.

[JohnH]

That's a very insightful observation, and right on target. Especially the part about people confusing the idea of "paying tax on the rebate" with "accounting for" the rebate on their 2008 return.

I expect the IRS to provide a "lookup" on their web site for how much was paid. I was already planning to charge for taking the time to check this site for any clients who can't remember whether or not they received it. But after reading your post I believe I am going to automatically check the site for anyone who claims they didn't receive it, and charge them for the service, as a precondition of preparing the return.

[erchess]

Agree with Burton

I sent emails to The President, my Congressman and both of my Senators imploring them all to set things up in such a way that it not be necessary to know for purposes of preparing a 2008 Return how much if any Stimulus Money the taxpayer received in 08. My pleas fell on deaf ears and I will have to deal with angry uncomprehending clients next year. Anyone who tells me they got Stimulus Money and ends up getting a worse bottom line than they were expecting will blame the difference on the Stimulus Money and wonder if they would have gotten away with not reporting it.

It gives me some solace to remember this story from history. In the 1700s England moved from the Julian Calendar to the Gregorian Calendar. The result was that people went to bed on the evening of one date and woke up the next morning on a date two weeks later. The poor people in London rioted demanding that the government restore to them the two weeks of their lives that it had stolen. The religious leader John Wesley played a major role in calming the situation by explaining events in a way the mob could understand. Unfortunately John is no longer around to assist me with irate clients.

[JohnH]

Well, this is the first time I'd heard about the two weeks, but somebody needs to do something about Daylight Savings Time - that extra hour of daylight is killing my wife's roses.

[Koss]

The Interview

I work in a storefront setting, and every year I do dozens of returns for new clients. I have some clients who come back year after year, but every year my office loses some clients who move, and we get new ones that may not be back the following year.

What I've learned over the years is that doing a return "live," with the client at your desk, involves a lot of psychology. I don't have professional law enforcement training, but I think I've learned to read people's faces and other nonverbal communication pretty well.

For the rebate issue, you don't have to be a mindreader or a professional interrogator. You simply ask the client if they got the rebate. The key is watching the facial expression, eye contact, and most important, recognizing whether there is any hesitation in the answer. The question has a simple yes or no answer, and with one or two extremely rare exceptions, the client should know the answer immediately.

Any hesitation at all is a red flag that indicates that you are probably dealing with a client who received a rebate, but has come to believe that it should not be reflected anywhere in the calculation of his 2008 tax liability.

At that point you should open a dialogue about it, and acknowledge that the rebate is not taxable income.

The best way to educate these clients is before the return is filed--not after the IRS has adjusted the refund because they lied to you about the rebate.

For someone who just isn't getting it, the best way to explain it may be this:

Look, here's how it works. You either get the rebate during the summer of 2008, or you get it now, as part of your refund. But you can't get it twice. So you gotta tell me whether you got it. If you tell me you me didn't get it, then I tell my computer program you didn't get it, and my program adds it to your refund. If you already got it, and you tell the IRS you didn't, then you're filing a false tax return.

With all that said, checking the IRS website isn't a bad idea, either.

[Black Bart]

Yuk-yuk

You're a card, EC.

I sent emails to The President...imploring...

Surely he read it...

[JohnH]

Trust, but verify.

Yes, I agree you get to be pretty good at reading body language in this business. And I've found that when trying to figure out whether to trust my client or my instincts, it's always a good idea to follow my instincts when there's any uncertainty. However, when there's an opportunity to verify, that's what I'm going to do.

I'm confident the IRS will set up an online quick-check just like they did for the last rebate. It was easy to use. I had a link set up to it and the only time involved was the amount of time it took to enter the primary SocSec#. It worked every time, and back then I didn't use a second monitor like I do now.

[Bees Knees]

No doubt IRS will probably send everyone some kind of 1099 for it. Probably a 1099-STIM.

Then we can get phone calls from all those people we did stimulus returns for. They will want to come in and file another return because the IRS sent them something they think they need to report.

[BOB W]

If I truely understand this rebate it is a 2008 tax return rebate but the computation uses the 2007 tax return in anticipation of the rebate amount in order to get the money into the economy this summer . If by chance the 2007 amount equals the 2008 amount then there is no more rebate in the "POT" to be had. If the 2008 shows a better rebate then what was received then an additional rebate will be included in the refund or will reduce the balance due on the return. If the rebate calculated on the 2008 is less than the 2007 rebate the clients gets to keep the additional funds with no strings attached.

That is the way I look at it.....................

Why could it be less:
1- a sixteen year old was on the 2007 return and is now 17.
2- AGI now exceeds the threshold.
3- T/P has less income taxes paid

Why could it be more:

1- A new born child in 2008
2-AGI is now under the threshold.
3- T/P has more taxes paid on tax return.

There are other issues but the above will be the most common.