Tax Rebate or Tax Advance ??

[Helena]

Will we have to pay back this
re-bate and switch when we
file our 2008 tax return ??



MILSTEAD: You recall the '01 tax 'rebate' checks?

Rocky Mountain News

Wednesday, January 23, 2008


**


Already, we are calling the Bush administration plan to give households $800 to $1,200 in cash a "tax rebate," much as the smaller 2001 checks were described.

That was a misnomer. The summer 2001 "rebate" checks were not a rebate of taxes paid the previous April, as many thought. Instead, they were an advance on the refund taxpayers were going to get in April 2002.

That meant refunds in April 2002 were $300 smaller than they would have been without the summer 2001 checks. And those who owed taxes faced a tax bill $300 higher.

**

Click link below for entire article

MILSTEAD: You recall the '01 tax 'rebate' checks? : Columns & Blogs : The Rocky Mountain News



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[CCdaCE]

Like I said in post 96 of this thread.

Look at it the other way... do you want $X next time you do your taxes or $X now?

I don't see how the two relate. Unless someone is saying you can have $X now or $X+Y later. I haven't interpreted it that way.

Isn't it like a dividend -- issue it ASAP. But, wait, isn't it my money to begin with? Vicious cycle/circle.

Rebate as opposed to refund.

-CC

 

[BristolBane]

If I'm understanding the mechanics correctly, it means that the IRS will adjust the tax brackets so that the first $6,000 dollars of earned income is not taxed. Normally it would have been taxed at 10% or $600. And they are sending us the $600 now instead of waiting until people file their returns in 2009(?).

So, I don't think the author of the article is being fair. It's not like you're getting an advance on the refund you would have received if there hadn't been any change to the tax structure. You're getting an advance on the change that was made.

 

[mickeyd]

Will we have to pay back this
re-bate and switch when we
file our 2008 tax return ??

I think that the that it will work is that when you do your taxes for 2008 next year there will be a tax credit of $600 per taxpayer. If you have already taken the tax "gift" in the spring of 2008, you will have to offset the "tax credit" with a "tax debit" of $600. The part about sending you a check in the spring is all political so that many folks will feel warm and fuzzy about Uncle Sam "looking after them."

 

[Helena]

If I'm understanding the mechanics correctly, it means that the IRS will adjust the tax brackets so that the first $6,000 dollars of earned income is not taxed. Normally it would have been taxed at 10% or $600. And they are sending us the $600 now instead of waiting until people file their returns in 2009(?).

So, I don't think the author of the article is being fair. It's not like you're getting an advance on the refund you would have received if there hadn't been any change to the tax structure. You're getting an advance on the change that was made.

The way I understand it... it was supposed to have worked
like that in 2001/2002 also... except the tax brackets were
NOT changed for 2001 and people had to repay in 2002
the money they received in 2001.

If this is a tax advance on 2008, calling it a "tax rebate" is
unfair and misleading.


*

 

[BristolBane]

The way I understand it... it was supposed to have worked
like that in 2001/2002 also... except the tax brackets were
NOT changed for 2001 and people had to repay in 2002
the money they received in 2001.

If this is a tax advance on 2008, calling it a "tax rebate" is
unfair and misleading.


*

Right, because they effectively created the 10% bracket by sending the checks out. If they had changed the brackets it would have messed up everyone's withholding. The brackets went into effect for 2002.

 

[OAG]

Lets see repay the money. If you get $1,600 (whatever else you want to call it) then must show it as "income" on next year's (08 tax return), wouldn't it be taxed at your marginal rate (example $1,600 X 15% (assumed example marginal tax rate) = $240)? The repayment is the tax on what you receive (the "rebate check"); in this example $240.

 

[Bikerdude]

From what I've read the program is a one time tax cut and not taxable at the Federal level. Check with your own state to see if they will tax it.

 

[bright eyed]

it's like the IRS turned into one of those check cashing places on the corner...

 

[DallasGuy]

How do they determine who gets the tax rebates? Or do they just autimatically send it to everyone and if you make too much, you pay it back with your 2008 taxes (in 2009)? I'm confused.

 

[ExHermit]

I wouldn't get too worked up over the details of this proposal just yet. It seems that the Senate was left out of the negotiations between the House and Bush. Senators hate to be ignored, and even a small number of senators can be very effective at blocking a bill.

If a stimulus package actually passes at all, it may well be different from what is being talked about now.

ExHermit

 

[OAG]

I thought I saw Harry at the table, Harry Reid, Senator in charge over at the Senate. But they did hurt old Senator Kennedy's feelings by not having him there and he is upset about it. So you are right what finally gets approved may look a lot different than it does now but the "rebates" should stay. May be a lot of other junk in it.

 

[Arc]

it's like the IRS turned into one of those check cashing places on the corner...

If that's the case, hold on to your wallet - it means they will get "their" money back plus a healthy return.

 

[ChuffDaddy]

**
That was a misnomer. The summer 2001 "rebate" checks were not a rebate of taxes paid the previous April, as many thought. Instead, they were an advance on the refund taxpayers were going to get in April 2002.

That meant refunds in April 2002 were $300 smaller than they would have been without the summer 2001 checks. And those who owed taxes faced a tax bill $300 higher.

**

Not really. The rebate checks (technically an advance payment of a rate adjustment credit) had no affect on your 2001 taxes.

If you had substantially the same income and withholdings in 2001 as you did in 2000, you had the same amount of federal income taxes, and the same amount of a refund or payment due. (Your refund was not $300 lower, nor did you owe $300 more.)

Plus, you got a $300 check, which effectively lowered your taxes by $300.

For example, if your taxable income was $6,000 in 2000, your tax return had the following:

Taxable income: $6,000
Tax: $900

Along comes 2001, and the government cuts your taxes. But rather than adjusting the tax tables, it leaves those alone, and sends you a check for $300. Your tax return once again had the following:

Taxable income: $6,000
Tax: $900

But, since you had gotten a $300 tax credit in advance, your effective tax was only $600. (Note that you did not have to pay this back.)

And then, come 2002, the government changed the tax tables, and your return was:

Taxable income: $6,000
Tax: $600

In 2000, you paid $900 in taxes. In subsequnet years, $600. It was just in one of those years you got your $300 tax cut early.

Does that clear it up?

 

[ChuffDaddy]

I think that the that it will work is that when you do your taxes for 2008 next year there will be a tax credit of $600 per taxpayer. If you have already taken the tax "gift" in the spring of 2008, you will have to offset the "tax credit" with a "tax debit" of $600. The part about sending you a check in the spring is all political so that many folks will feel warm and fuzzy about Uncle Sam "looking after them."

Nope.

What will happen is your line for the tax credit will be $0, not $600.

If I get the credit in the form of a check, I won't be able to take the credit again when I file my return, true. But I will not have a negative credit. It will simply be zero.

 

[youbet]

My son and DIL won't qualify for a check because their income is too high. Is it possible that they will wind up not getting a check and paying higher taxes for 2008 as the gov't makes adjustments to recapture the money?

 

[ChuffDaddy]

The way I understand it... it was supposed to have worked
like that in 2001/2002 also... except the tax brackets were
NOT changed for 2001 and people had to repay in 2002
the money they received in 2001.

If this is a tax advance on 2008, calling it a "tax rebate" is
unfair and misleading.


*

Not exactly. It is true that the tax brackets were not changed. Instead, you received a check in that amount.

Again, let's say that you earned $6,000 of taxable income in 2001. If they had changed the tax tables instead of sending a check, your tax for 2001 would have been $600 (10% of $6,000). Instead, they left the tax tables the same, so your tax was $900, but because you recieved a rate reduction credit of $300 earlier, your effective tax bill for the year was the same. $600 = $900 - $300.

Had they cut you a check and changed the tables, you would have gotten the credit twice.

Does that clear things up?

 

[ChuffDaddy]

Lets see repay the money. If you get $1,600 (whatever else you want to call it) then must show it as "income" on next year's (08 tax return), wouldn't it be taxed at your marginal rate (example $1,600 X 15% (assumed example marginal tax rate) = $240)? The repayment is the tax on what you receive (the "rebate check"); in this example $240.

The check, like any refund check, is not considered taxable income by the feds.

 

[ChuffDaddy]

My son and DIL won't qualify for a check because their income is too high. Is it possible that they will wind up not getting a check and paying higher taxes for 2008 as the gov't makes adjustments to recapture the money?

No. The government is not making any other changes to the tax law as a result of this.

 

[youbet]

You seem informed on this subject ChuffDaddy. Do you know exactly which line on form 1040 will be used as "the number" to determine if you're qualified in terms of income or not?

 

[ChuffDaddy]

If I'm understanding the mechanics correctly, it means that the IRS will adjust the tax brackets so that the first $6,000 dollars of earned income is not taxed. Normally it would have been taxed at 10% or $600. And they are sending us the $600 now instead of waiting until people file their returns in 2009(?).

Actually, they are issuing a tax credit in lieu of adjusting tax brackets. The tax brackets will continue to tax the first $6,000 of your income at 10%.

If they did change the tables AND issued the credit checks, you would be getting double the cut. So they won't.

 

[SecondCor521]

You seem informed on this subject ChuffDaddy. Do you know exactly which line on form 1040 will be used as "the number" to determine if you're qualified in terms of income or not?

I'm not ChuffDaddy, but my understanding is that it will be based on AGI. On a 2007 1040 (which is what most people here are working on filing right now), one's AGI is found on line 37.

2Cor521

 

[myself]

You seem informed on this subject ChuffDaddy. Do you know exactly which line on form 1040 will be used as "the number" to determine if you're qualified in terms of income or not?

While ChuffDaddy hasn't responded, I will.
The rebate is not taxable at the Federal level. Each state will deal with it as they choose.
The rebate is also evidently isn't affected by SS (i.e. it's doesn't lower your SS check).
The 1040 uses line 37 for AGI, and 1040A uses line 21 for AGI. And for those that may use it, 1040EZ the AGI is on line 4.

Information (from the "horse's mouth"):
Information on Stimulus Package
Facts about the 2008 Stimulus Payments
http://www.irs.gov/pub/irs-pdf/f1040.pdf
http://www.irs.gov/pub/irs-pdf/f1040a.pdf
http://www.irs.gov/pub/irs-pdf/f1040ez.pdf

 

[OAG]

No checks to anyone (who qualifies) who had direct debit/deposit of their current (2007) tax refund of payment - the "rebate" "premature refund" or whatever else you want to call it will just be a deposit to your account. What happens in 2009 when you file your 2008 taxes is IMHO unknown now although it is interesting to read all of the possibilities as mentioned here.

 

[ChuffDaddy]

You seem informed on this subject ChuffDaddy. Do you know exactly which line on form 1040 will be used as "the number" to determine if you're qualified in terms of income or not?

As I understand it, the income limits apply to Adjusted Gross Income, less dividends, capital gains, and interest. So what is that, Line 37 less Lines 8a, 9a, and 13?

There are other rules for individuals who receive Social Security benefits, Railroad Retirement benefits and certain veterans’ benefits.