Due to the poor economy the United States Government began sending out economic stimulus payments to more than 130 million households starting this past May 2008. The economic stimulus payment is not taxable, and it will not reduce your 2007 or 2008 refund or increase the amount you owe when you file your 2008 return. The tax rebate checks are coming from the Internal Revenue Service (IRS). If you filed a tax return for 2007 and your refund was directly deposited into your bank account via electronic funds transfer, the stimulus check will also be deposited into your bank account. If your refund was sent to you via mail, then the stimulus check will also be sent via mail.

The pressing question is, are you eligible for the rebate check? The vast majority of people who file a 2007 income tax return qualify, and many who do not regularly file a tax return may qualify as well. You are eligible if you have a valid Social Security Number, can not be claimed as a dependent on a tax return and have either an income tax liability or qualifying income of at least $3,000. A married couple filing a joint return must both have valid Social Security Numbers to qualify for the payment. If only one has a valid SSN, neither will be eligible to receive the payment. If you are not eligible at the current time and become eligible next year, you can claim the economic stimulus payment next year on your 2008 tax return.

The actual payment amount depends on the information contained on your tax return. Eligible individuals will receive between $300 and $600 and those who are eligible and file a joint return will receive a total of between $600 and $1,200. Those with children will get an additional $300 for each qualifying child. To qualify, a child must be eligible under the Child Tax Credit and have a valid Social Security Number. The payments phase out at certain income levels, so those with higher incomes may receive a reduced payment or even no payment at all. The stimulus payment begins to phase out for individuals with adjusted gross incomes over $75,000 and married couples who file a joint return with adjusted gross income over $150,000. The combined payment is reduced by 5 percent of the income above the adjusted gross income thresholds. Here is an example:

An individual with AGI of $80,000 and federal income tax liability in excess of $600 would qualify for a partial rebate check. The individual’s AGI exceeds $75,000, by $5,000, and the rebate is reduced by $250 ($5,000 multiplied by 5%). The taxpayer receives an economic stimulus payment of $350.

Individuals who pay no tax and who have less than $3,000 of qualifying income will not be eligible for the stimulus payment.

There are special circumstances for recipients of Social Security, Railroad Retirement and Certain Veterans Benefits. The economic stimulus law allows Individuals who receive Social Security benefits, Railroad Retirement benefits and certain Veterans’ benefits to count those benefits towards the qualifying income requirement of $3,000. Those who have already filed a 2007 return reflecting qualifying income of $3,000 or more do not have any additional filing requirements. Those who have already filed a 2007 return showing less than $3,000 in qualifying income and did not list their Social Security, Railroad Retirement or certain Veterans benefits should file a Form 1040X to list those non-taxable benefits and qualify for a payment. Those who are not required to file a 2007 return but whose total qualifying income including Social Security, certain Railroad Retirement and certain Veterans benefits would equal or exceed $3,000 should file a return reporting these benefits on Line 14a of Form 1040A or Line 20a of Form 1040 to establish their eligibility. Please note the form lines just mention Social Security, but use these lines even if your only benefits were Railroad Retirement or Veterans’ benefits.

Most taxpayers will receive two notices from the Internal Revenue Service. The first general notice from the IRS will explain the stimulus payment program. The second notice will confirm the recipients’ eligibility, the payment amount and the approximate time table for the payment. Taxpayers will need to save this notice to assist them when they prepare their 2008 tax return next year.

Currently, Stacey L. Morin works for Wilshire Associates Inc. in their Private Equity Division as Assistant Controller and holds a Masters of Business Administration in Finance from California State University Northridge and Bachelors of Business Administration in Accounting from Eastern Michigan University. Ms. Morin is a Freelance Business Consultant Writer on the side.

By Stacey L. Morin, MBA-Finance, July 2008