One of the questions that keeps coming up about the stimulus package checks, commonly referred to as rebates, is, "Will I owe taxes on my rebate money?"
I am happy to report that the stimulus checks will not count as taxable federal income. The IRS says so in this section (fourth "other" Q&A) of its FAQs page.
So you won’t have to worry about reporting your $300 or $600 or $1,200 or more as income on your 2008 Form 1040.
But when it comes to state taxes, the answer is "maybe."
As I’ve talked about before, both in this Don’t Mess With Taxes post and in my other tax blog, Eye on the IRS, state and federal tax laws don’t always automatically synch up. In fact, they sometimes are diametrically opposed.
And many states, already facing budget shortfalls, are loathe to let go of any money. That includes the funds they could collect on this federal tax payment.
So far, information on state taxes and the federal rebates is scarce. That’s not surprising. The money would be counted on 2008 state tax returns filed next year, and most folks aren’t thinking that far ahead.
Plus, what does it really matter? Are you going to turn down the federal rebate because you don’t want to pay your state tax collector? Even if we could, which I doubt since most of the money will be sent out automatically in May, few if any of us would.
Who’s taxing, who’s not: I’ve done some surfing and so far have found just two mentions of state taxes in regard to the stimulus rebate.
Down in Alabama, it looks like, for at least now, the rebates would be taxed under that state’s tax laws. Doing so, according to an editorial in today’s Montgomery Advertiser, would generate an additional
So Alabama lawmakers have to decide whether to collect tax on the individual rebate money to help fill an estimated $60 million state treasury gap.
In New York, the news is better.
Gov. Eliot Spitzer announced last week that the federal stimulus rebate payments will not be subject to New York personal income tax.
And taxpayers across the Empire State are now proclaiming, "I love New York’s rebate tax policy."
My advice is to check with your state’s officials, political as well as tax. As I mentioned earlier, since this is taking place in the 2008 tax year, they might not have yet thought about how they will handle taxing or not taxing the rebates. Or any decision might require some legislative action either way later this year or next year.
You can find a link to each state’s tax department in Bankrate’s state tax directory pages. Links to the 50 governor home pages can be found at this Global Computing page.
If you let me know what you find out about your state’s rebate tax plans, I’ll share the info here.
Prebates?
Are the tax rebates prebates or not? The IRS FAQ says they are not. How ever, your Bankrate FAQ says otherwise
IRS FAQ
Q. Will the payment I receive in 2008 reduce my 2008 refund or increase the amount I owe for 2008?
A. No, the stimulus payment will not reduce your refund or increase the amount you owe when you file your 2008 return.
Bankrate FAQ Snip
But filers will have to reconcile any money they receive this year when they file their 2008 returns.
“It harks back to the 2001 situation when we got the new 10 percent bracket and got an advance check for that. Then on next return had to account for it,” says Luscombe. “It’s expected to be that way this time.”
The 2008 tax forms should have a line for the new credit. When calculating taxes next year, taxpayers will have to subtract what they got as a rebate check the previous summer This doesn’t mean you’ll have to pay back the rebate amount you get in 2007. It just means that since you got it early (i.e., the summer of 2007), you can’t claim it again on your 2008 return.
“Some people might think that’s unfair,” says Luscombe, “but they got the money, and they got it early.”
Kay @ Don't Mess With Taxes
THe IRS key phrase is it won’t REDUCE your refund or INCREASE the amount you owe.
But it could INCREASE your refund or REDUCE the amount you owe. Here’s how.
Since this is an advance credit, or a prebate it is expected to work just like the 2001 advance payment of the rate reduction credit. (Of course, this is the IRS and things could change.)
That year, taxpayers got $300, $500 or $600 dollars in credit on their 2001 taxes in advance. Then when filing season rolled around, that advance payment was taken into account on the 2001 tax returns (it’s line 47 on that year’s form http://www.irs.gov/pub/irs-prior/i1040–2001.pdf).
If, for example, back then you got a $300 advance credit/rebate as a single filer, but you ended up filing your 2001 return as a head of household and thereby were eligible to take a $500 credit, you got that extra $200 whem you filed your return in 2002.
If, however, it was the revers and you should get a $300 instead of $500 rebate, you didn’t have to worry about paying back the money.
It is expected to be the same this time. The reconciliation will be to account for that advance 2008 credit you got in 2007.
If a married couple, based on their 2007 return, get $1,200 back this summer but when they file their 2008 return only have a tax liability of $1,000. They don’t have to give back the $200 they already got.
But if their advance credit/rebate this summer is $1,000 and when they file next year their 2008 tax liability is more than $1,200, they’ll get that extra $200 then.