How the Economic Stimulus Check Affects Your Tax Return
Like many Americans, my wife and I received an economic stimulus check last year. We received the full check – $600 each, for a total of $1,200. When I started filling out our tax return with TurboTax I noticed there is a section to enter the amount of your stimulus check. When I did so, the amount of our tax return dropped by the exact amount of our stimulus check. At first I thought I was losing out on money. Then I remembered why it appears this way.
How the Economic Stimulus Check Affects your 2008 Tax Return
The stimulus check was not free money like many people assumed. The stimulus was actually a change to the tax code that was to take effect for the 2008 federal tax season (taxes filed this year).
The new tax code eliminated the 10% tax bracket. The economic stimulus package was a change in the tax code that eliminated the 10% bracket for the first $6,000 of taxable income in 2008. However, the US Government wanted to give its citizens the money up front in the hopes they would go out and spend it to stimulate the economy. In some ways, the stimulus check was like an advance payment for the changes that took affect for the 2008 tax season.
How tax software programs handle the stimulus check. Commercially available tax software such as TurboTax. TaxCut. etc. will fill out your tax return based on the 2008 federal tax code – eliminating the 10% tax bracket from the first $6,000 of your income. When you input your information, the tax program automatically gives you that additional $600 (10% of $6,000 for single filers) as part of your tax return. When you input the amount of your economic stimulus check into the tax program you use, the software will reduce your 2008 tax rebate by that amount because you have already received that money. Call it an advance on your tax return if you will.
What if your 2007 and 2008 income is different? Will it change the amount of your Stimulus check payment?
Good question, and yes it can, but it
may not. The stimulus check was based on your 2007 tax return because 2008 federal tax returns had not yet been filed. However, that means the tax situation may have changed for some people between the two years. There is good news though – if the government overpaid you based on the amount you would have received this year, you don’t have to pay it back. If the government underpaid you, you will receive it as part of your 2008 federal tax return.
Here are two examples:
You did not receive a stimulus check because you earned too much money in 2007.
Eligibility for the stimulus check phased out above certain incomes, starting at $75,000 for single tax filers and $150,000 for joint tax filers. Single filers who earned more than $87,000 and joint filers who earned more than $174,000 did not receive a stimulus check because they earned too much money to be eligible. If your 2008 income dropped below those levels, you may find yourself eligible for the amount of the stimulus you would have qualified for. That amount will be figured into your 2008 federal tax return
The IRS sent you a stimulus check but your 2008 income won’t qualify for it – you keep it.
Conversely, if you earned under the phase out limits in 2007 and received a full stimulus check, but earned more than the phase out limits in 2008, you do not have to pay back the stimulus check you received. Please note this is for income limits and not for other errors. If the IRS added a zero to your stimulus check and sent you $6,000 instead of $600, they might want that back!
How to find out how much you received from the stimulus check
When filling out your federal tax return you will need to input the amount you received from the 2008 stimulus check. If you don’t remember off hand, you can find out from the IRS via this online stimulus payment tracker. Simply input your information and the IRS will inform you the amount you received from the stimulus.
More economic stimulus questions?Source: cashmoneylife.com