Economic Stimulus Payment

and

Recovery Rebate Credit

Economic Stimulus Payment:

The economic stimulus bill provides tax rebates to most low- and middle-income tax payers. The IRS, however, will use your 2007 tax return to determine the payment and how much. Here are details of the plan.

Maximum payment: According to the Economic Stimulus Act of 2008, most working people will get $600 if they are single or $1,200 if they file a joint return, assuming they paid at least that much tax in federal income tax in 2007. Generally, the payment cannot be more than your 2007 net income tax liability (your regular tax liability plus any alternative minimum tax (AMT), minus any non-refundable credits you claimed other than the child tax credit).

Minimum payment: To help people who earn little or anyone who had at least $3,000 in income from a job, self-employment, Social Security and/or certain veterans’ benefits would get a flat payment of $300 if single or $600 if married filing jointly, even if they don't owe income tax.

If your 2007 federal tax liability is between $300 and $600 (single) or $600 and $1,200 (married), your payment will be equal to whatever you paid in tax.

Additional Payment: You will receive an additional payment of $300 for each child eligible for the child tax credit in 2008. To qualify, the child must be younger than 17 on Dec. 31, 2008.

Non – Residents:

Non-resident aliens are ineligible for stimulus payment (you must have a Social Security number to get a rebate). If you can be claimed as a dependent of another taxpayer you are ineligible for payment.

Recovery Rebate Credit :

Recovery Rebate Credit is one-time benefit for people who didn’t receive the full Economic Stimulus payment last year (2008) and whose circumstances may have changed, making them eligible now for some or the entire unpaid portion. This credit will increase the amount of tax refund or decreases you tax liability. There won’t be any separate check for this credit.

Generally, people who did not receive any stimulus payment, who have received less than the eligible payment, individuals who did not have valid SSN in 2007 but received in 2008, and couples who had an additional qualifying child in 2008 will be benefited by this recovery rebate credit.

On the other hand, if you would have gotten a smaller rebate based on your 2008 return, you won't have to pay back the difference.

If your adjusted gross income of 2008 is more than $75,000 ($150,000 if married filing jointly), your credit will be reduced by 5% of your AGI in excess of that amount.

The rebate - including the $300 rebate for kids - start to shrink when your adjusted gross income reached $75,000 (single) or $150,000 (married). Adjusted gross income includes income from all sources, but before most deductions and exemptions have been subtracted. The rebate is reduced by $50 for every $1,000 you earn above the income limit. Singles with more than $87,000 in gross income and couples with more than $174,000 get no rebate if they have no children.

Kishore Kumar Chennu, author of this post, is Senior Consultant, Corporate Trainer and founder of International Tax Business School (ITBS), trainers in US, UK, Indian, Canada and Australian Income Taxes (http://www.taxbizschool.com/), The views expressed in this post are personal views of the author. International Tax Business School serves students, employees, corporates by offering a wide range of services, which typically are offered by a large training centers, In-house training Centers, Corporate Training firms. Write to kishore@taxbizschool.com for additional information about International Tax Business School & its offerings. Disclaimer: ITBS does not offer legal services or legal advice, but only generic information on legal subjects.