Like most Americans, you’ve probably already tallied up your tax rebate and have made
plans for how you will spend it. You’ve probably assumed you’ll get $1,200 for you and
your wife, if you’re married, and $ 300 for each of your children. For a married couple
with three children that adds up to $ 2,100! What you actually receive, however, may be
quite different.
The rebates were the result of the Economic Growth Act of 2008, passed on February
13th. The intent was to provide an economic stimulus to the economy. Included are
payments of up to $600 for most individual taxpayers. There’s the catch. Payments of
“up to” $ 600 “for most taxpayers” are included. Not everyone will get the full $ 600.
First of all, you must file a federal tax return to get a rebate. There are some people
who don’t normally need file a tax return, but must do so this year to assure they receive
their rebate (some Social Security recipients and low income earners). You must have a
Social Security number to receive a rebate, so if you have a new baby, make sure you
get a Social Security number right away. You don’t need to apply for a rebate. It will be
automatically sent to you by the IRS based on the tax return you file for 2007. The IRS
expects to start sending out rebates in the May time frame.
Secondly, the amount you will receive will depend, in part, on how much tax you paid for
2007. For example, if you are single and paid taxes of more than $ 600 you will receive
a $ 600 rebate. If you paid taxes of more than $ 300 but less than $ 600, you’ll receive
a rebate equal to the amount of taxes you paid. If you paid less than $300 in tax, or no
tax at all, but had qualified income of at least $ 3,000, you will receive a rebate of $300.
If you’re married and paid taxes of more than $ 1,200, you’ll receive a rebate of $1,200
but not if you paid taxes between $600 and $ 1,200. Your rebate in that case will equal
the amount of taxes you paid. If you paid less than $ 600 in taxes and had qualifying
income of at least $3,000, you’ll receive rebate of $600.
Qualifying income includes earned income or wages, self-employment income, Social
Security, Railroad Retirement, and certain veteran’s benefits. Dividends, interest,
capital gains, distributions from IRAs and non-Social Security or Railroad pensions are
not considered qualifying income.
Taxpayers with children under the age of 17 will receive $ 300 for each child, regardless
of their income or the taxes they paid for 2007. There is no limit on the number of
children that can qualify for rebates.
Higher income earners may have their rebate reduced. If you are married and filing
jointly and your Adjusted Gross Income (AGI) is greater than $ 150,000, your rebate will
be reduced by 5% of the amount of your AGI exceeding $150,000. Thus, if your AGI
was $ 160,000, your rebate will be reduced by $ 500 (5% of $10,000). If you are single
and your AGI exceeded $ 75,000, your rebate will be reduced by 5% of the amount of
your AGI over $ 75,000. Thus if your AGI was $80,000, your rebate will be reduced by $
250 (5% of $5,000).
Hopefully we’ve cleared up any misconceptions that you may have had about the rebate
you’ll receive. We apologize if we’ve burst your bubble and you’re not going to receive
as much as you thought. And, if you’re now not going to have enough to buy that new
flat screen TV you were dreaming about, consider saving your rebate instead. We know
that not spending your rebate defeats the purpose of the economic stimulus package.
Nevertheless, with our economy in Michigan in such dire straights, there’s no telling how
your finances may be affected in the coming months. A few extra dollars in your
emergency fund may just come in handy!
David C. Patterson, CFP® and Erin Patterson, CFP® are the owners of Patterson Advisors, LLC, a fee-
for-service-only financial advisory firm. Patterson Advisors, LLC is a Registered Investment Advisor,
registered with the State of Michigan, helping clients in Waterford, Clarkston and Royal Oak, Michigan
as well as other Oakland County, Michigan communities . Visit www.pattersonadvisorsllc.com for more
information or call 248-674-2108.
Published in the Oakland Insider, April, 2008,
Your Tax Rebate May Be Less Than You Think
By David and Erin Patterson