An estimated 130 million Americans will receive tax rebates this year. According to the IRS, "the vast majority of Americans who qualify for the [rebate] payment will not have to do anything other than file their 2007 individual income tax returns to receive the payments this year. The IRS will use information on the tax returns to determine eligibility and calculate the amount of the stimulus payments." Also according to the IRS, you should receive two notices from them―one explaining the rebate program in more detail, and a second to confirm your eligibility, rebate amount, and anticipated time-table for payment. Eligibility To be eligible for the rebate, you must have qualifying income for 2007 of at least $3,000―or your 2007 tax liability (determined by a special calculation) must be one dollar or more, and your gross income must be greater than the amount of your standard deduction and personal exemption(s) combined. Qualifying income generally refers to earned income―not interest, dividends, or capital gains, for example. However, the law includes a provision that Social Security income and veteran's disability income (including payments to survivors) are considered qualifying income in determining your eligibility for a rebate. You also must have a valid Social Security number, not an IRS-issued taxpayer identification number, to qualify ―illegal immigrants are not entitled to rebates. Also ineligible are those who can be claimed as dependents' on other taxpayers' returns, nonresidents who file form 1040-NR, and those in Puerto Rico who file 1040-PR or 1040-SS. Amount of the Rebate For those who qualify, the maximum and minimum rebate amounts are as follows, subject to additional limitations described below:       Maximum rebate amounts          Single taxpayers: $600          Married couples: $1,200       Minimum rebate amounts          Single taxpayers: $300          Married couples: $600       Additional rebate amounts for dependent children: $300. Generally, to qualify for the additional rebate amount, your child must be under the age of 17 as of the end of 2007, have a valid Social Security number, live with you more than half of the year, meet certain relationship tests, and not have provided more than half of his or her support for the year. There are no limits established for the number of dependent children who can qualify for the additional rebate. For most taxpayers with a tax liability of at least one dollar for 2007, their maximum rebate is limited by the amount of their income tax liability for the year―although the minimum rebate is not reduced below $300 or $600. So, for example, if you are a single taxpayer with a tax liability of $490, and you satisfy all of the other requirements, your rebate is limited to $490 rather than $600. However, if you are a low-income worker, a senior with Social Security income, a retiree with certain Railroad Retirement benefits, or a veteran with disability income―and you pay no federal income tax―you're eligible only for the $300 or $600 minimum rebate amount, as long as you have qualifying income of $3,000 or more. Phase-out for Higher-Income Taxpayers The amount of your rebate decreases, or phases out, as your income increases. For higher-income taxpayers, the reduction is determined based on your filing status and adjusted gross income. The phase-out begins at an adjusted gross income of $75,000 for single filers and $150,000 for married couples filing joint returns. If your adjusted gross income exceeds the specified amount, your rebate is reduced by 5 percent of the excess. That means, for example, that every $6,000 of adjusted gross income in excess of the phase-out amount reduces the total amount of the rebate (including amounts for dependent children) by $300.  Second Chance Rule Technically, the rebate applies to your 2008 income, even though you'll receive a rebate if you satisfy the eligibility requirements and file a federal income tax return for 2007. The practical impact is that, if you are not eligible for the rebate in 2007 but are eligible in 2008, you will receive your rebate as a credit on your 2008 tax return. This is sometimes referred to as the second-chance rule. Also, if you are eligible for a larger rebate based on your  2008 than you than you received based on your 2007 income, you'll receive the difference as a credit on your 2008 tax return. On the other hand, if you were eligible in 2007 and are no longer eligible in 2008, you will not have to return your rebate. Likewise, if you qualify for a smaller rebate amount based on your 2008 income as opposed to your 2007 income, you will not have to return the difference. Your 2007 rebate amount is yours to save, spend, or invest as you like―although many in government are hoping you will spend it all! Procedure for Claiming a Rebate According to Acting IRS Commissioner Linda Stiff, "If you are eligible for a [rebate] payment, all you have to do is file a 2007 tax return and the IRS will do the rest." This is true even if you have already filed your tax return for 2007. The IRS simply uses the information on your 2007 tax return to determine your eligibility and calculate the amount of your rebate. One caveat: If you received qualifying income in the form of Social Security, Railroad Retirement, or disabled veterans' benefits and did not include them on a 2007 federal income tax return―either because you weren't required to file this year or simply because the benefits were nontaxable―you may need to file a return (or an amended return) to demonstrate the minimum qualifying income of $3,000. Also, if you move after you file your tax return and before you receive your rebate, make sure you file a change-of-address card with the U.S. Post Office. Timing According to the latest information from the Internal Revenue Service, the Treasury will begin sending out payments in May―after the April 15 tax deadline―and the process will continue through the spring and summer. However, not all taxpayers will receive their rebates by summer's end. If you extend your tax return, you won't receive your rebate until after the return is filed, and potentially as late as December 31, 2008. For more rebate information, refer to the IRS website at http://www.irs.gov/irs/article/0,,id=177937,00.html Have questions about your rebate, or your overall tax situation? Give us a call. We can help. Rodney Fujita is a shareholder and director of the Bader Martin tax practice. He is also a member of the firm's High Net Worth Services practice. Rod's work integrates tax strategies and financial and business consulting for high net worth individuals and families, and their closely held businesses. He is also an expert at addressing the unique needs of public-company executives, including compensation planning, stock option consulting, and financial planning.

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