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For Most, Rebates Are a Simple Gift, CCH Says

(RIVERWOODS, ILL., February 8, 2008) – Millions of taxpayers – and some non-taxpayers – will be getting rebate checks from the IRS this year under the provisions of the Economic Stimulus Act of 2008, passed by both houses of Congress on February 7 and due to be signed by the President next week. Businesses also may benefit from the Act’s provisions encouraging investment in new equipment, according to CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (CCHGroup.com). To read CCH's Special Tax Briefing, click here.

While it is not clear how much the rebate checks will actually stimulate the economy through increased spending, for most recipients it will appear as a simple gift from the government, according to Mark Luscombe, JD, CPA and CCH principal federal tax analyst.

“Most people will only have to think about what they want to do with their checks, but in a few cases, people will have to take action to make sure they receive a rebate,” Luscombe said.

The rebates amount to $600 for an individual or $1,200 for a joint return, or the taxpayer’s net income tax liability, if that is less. However, people can qualify for a smaller rebate – $300 for a single taxpayer or $600 for a joint return – if they have earned income, Social Security benefits or disabled veteran benefits of at least $3,000. Also qualifying for the smaller rebate are those who owe at least one dollar in income tax with gross incomes that are greater than the basic standard deduction and the personal exemption amount (or twice the personal exemption amount, for joint filers). If someone qualifies for either rebate, they can also receive a credit of $300 for each of the children claimed as dependents on their returns.

Most people will qualify for the rebates and won’t have to do anything special to receive them.

“Simply filing their 2007 federal income tax will trigger the rebates for most families and individuals,” Luscombe said.

Things are even simpler for those who receive at least $3,000 in Social Security benefits or payments to disabled veterans. They shouldn’t have to do anything at all to show up on the government radar and receive their rebate checks.

Rebate checks are not expected to be sent out until May at the earliest. Filing for an extension, and not actually filing your return until the October 15 deadline for extended returns, will delay your rebate.

Some May File Just for Rebate

Some people with $3,000 in earned income, but who owe no tax and ordinarily wouldn’t be required to file might want to do so anyway.

“It’s a way of waving your hand to make sure you get your rebate,” Luscombe said.

There is also a small group of people who have no earned income and who can use deductions and credits to reduce their tax owed to zero or even less.

“The provisions get pretty tricky here, but people in this situation might want to take a close look at the law and consider not taking every last penny of the deductions and credits they’re entitled to, in order to qualify for a rebate,” Luscombe observed.

The rebates are reduced for single taxpayers with more than $75,000 in adjusted gross income (AGI). For joint filers, the phaseout begins at $150,000.

If you don’t qualify for a rebate based on your 2007 tax return, all is not lost. The rebate is actually a sort of advanced refund against your 2008 taxes. If you meet the qualifications when you file your 2008 return, you can claim it then if you didn’t receive a rebate based on the 2007 return.

What happens if it turns out that your 2008 return shows that you don’t qualify for the rebate, which you’ve already received and perhaps spent? Not to worry. The law provides that the IRS won’t try to recover it by reducing your 2008 refund or adding to your 2008 tax bill.

“This is the same procedure that was used in 2001, when a similar rebate program was enacted, except this time more people who do not owe any income tax will qualify for rebate checks,” Luscombe observed.

Business Stimulus Provisions

The Act also contains tax breaks for businesses tied to investment in new equipment. First, the Act raises the amount that businesses can simply write off, the so-called Section 179 deduction, from $128,000 to $250,000, for 2008. Second, it also permits “bonus” depreciation of 50 percent of the adjusted basis of qualifying property acquired in 2008 and placed in service in 2008 or 2009. In addition, there is a temporary housing loan limit increase for Fannie Mae and Freddie Mac and FHA approved mortgages.

“These measures will help businesses that buy new equipment, but whether they will induce anyone to buy more than they would otherwise is the big question,” Luscombe said.

A recent survey conducted by CCH revealed that most individuals plan to save, rather than spend, their tax rebates.

“Unless businesses are convinced that their customers will buy more, they may be reluctant to invest in more productive equipment,” Luscombe noted.

About CCH, a Wolters Kluwer business

CCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. Among its market-leading products are The ProSystem fx® Office, CorpSystem™, CCH® Tax Research NetWork™, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill.

Wolters Kluwer is a leading global information services and publishing company. The company provides products and services for professionals in the health, tax, accounting, corporate, financial services, and legal and regulatory sectors. Wolters Kluwer had 2006 annual revenues of €3.4 billion, employs approximately 18,450 people worldwide, and maintains operations across Europe, North America, and Asia Pacific. Wolters Kluwer is headquartered in Amsterdam, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. For more information, visit www.wolterskluwer.com.

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