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Review of the 2008 Tax Stimulus Package (Part One of Two) - What do individual taxpayers have to do to benefit?
By Russell O. Coon, CPA
The recently passed tax legislation is designed to stimulate the economy by providing advanced tax refunds during 2008 to many individual taxpayers and allowing accelerated deductions for certain businesses. The article discusses what individuals have to do to take advantage of the legislation and those who will not benefit from the legislation.
Overview of Legislation
Under the legislation most taxpayers with enough taxable income will be entitled to what is being called recovery rebate checks for $600 (Married persons filing a joint return $1,200) plus an additional $300 for every dependent. Certain taxpayers will be entitled to a rebate check of $300 even if they have not paid sufficient tax for the $600 - $1,200 rebates. The legislation also provides significant incentives for business which will be covered in the subsequent article of this two-part series.
Actions required by individuals
The IRS has stressed in recently issued notices that most taxpayers do not need to do anything unusual in order to receive a rebate check. The key to this is that most people will file 2007 tax returns before April 15, 2008. Although this legislation is a modification of individual's 2008 tax liability, the initial qualification for getting a payment is the facts presented in the 2007 tax return. As a result, people who might otherwise qualify for a rebate check will not get one if they don't file a 2007 return. In addition, individuals that otherwise qualify and need an extension to file his return after the due date, will not be considered for a rebate check until his tax return is received by the IRS.
Certain people who are not required to file a 2007 tax return as a result of insufficient taxable income and have no tax liability will still have to file a 2007 return in order to get a rebate check. Such people would include anyone with qualifying income totaling more than $3,000 but normally do not have to file. Such income would include social security payments, wages and self employment income. As a result, people who, under normal circumstances are not required to file and owe no tax, should determine if they have enough income to qualify for the rebate and file a 2007 return reporting the qualifying income. Such action would be required by many low income social security recipients.
In addition, some people may benefit from the legislation but not in the form of a rebate check. Some individuals will not qualify for a refund check based on their 2007 tax status but be able to apply the amount of a credit to their 2008 return. Such individuals might include people who were students and dependents of their parents, but will be fully employed in 2008 and not dependents and therefore qualify. Those that were denied advanced refund checks due to facts that no longer exist in 2008, may be due an additional 2008 tax credit.
Lastly, most married couples do not find a tax advantage in filing separate income tax income tax returns, except when some limit or phase-out of a tax provision makes separate filing worthwhile. This legislation with its various tests of income levels and types provides another potential set of circumstances where the testing of joint versus separate filing may be worthwhile.
Most people whose tax facts do not change significantly will find that the advance rebate check based on their 2007 facts will offset the credit in the 2008 return and no required action or payment is required.
Individual not receiving any benefit from the legislation
Some individuals may file their 2007 returns on time but receive no rebate check. The legislation provides that the following individuals are precluded from receiving such benefits:
- Higher income individuals [rebates begin to phase out when an individuals adjusted gross income exceeds $75,000 ($150,000 on a joint return)].
- Individuals who are dependents of other taxpayers.
- Individual with less than $3,000 of qualifying income (interest, dividends and capital gains etc. are not qualifying income).
- Individuals who are non-resident aliens, and residents of certain U.S. Possessions
- Individuals who the IRS believes owe taxes from other years.
If you would like to discuss this subject further, please contact Russell Coon (rcoon@pmn.com) or any member of our tax service team at (617) 426-9440.
Note: This article represents a general overview of or opinion on certain tax issues or developments and should not be relied upon without an independent, professional analysis of how any of these provisions may apply to a specific situation. We recommend you consult your professional tax advisor before taking any action based on anything in this article.
IRS CIRCULAR 230 NOTICE: In compliance with U.S. Treasury Circular 230 Regulations and any applicable state laws, we hereby notify you that any tax advice contained in the body of this document, or attachments thereto, was not intended or written to be used, and cannot be used, by the recipient or any other party for the purpose of (1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.
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