February 20, 2008 12:00 am

What You Need to Know about Your Tax Rebate Check

If you call the IRS’s toll-free number, you’ll hear an automatic phone message telling you that rebate checks will begin to be sent in May. Most of the 130 million taxpayers who are eligible for rebate checks do not have to do anything special to receive their checks; they’ll be sent automatically. But here are some things you do need to know.

Rebates are tax free

Rebates essentially represent a cut in 2008 taxes. However, all rebates are tax free. For example, if you receive a rebate of $1,800, $1,200 for you and your spouse, plus $300 for each of your two young children, the entire rebate is tax free to you.

If you receive a rebate based on your 2007 income but it later turns out that your 2008 income is too high to qualify for a rebate, you do not have to repay the rebate, nor do you have to adjust your 2008 taxes.

Since rebates are not counted as income, they will not be taken into account in determining eligibility for federal programs, such as food stamps and supplemental security income (SSI). The rebates are not counted as income for purposes of determining the percentage of Social Security benefits that are includible in income for tax purposes.

What you need to do to get a check

For most individuals, filing your 2007 tax return as usual is all you have to do for rebate purposes; no additional form or schedule is required. Those who have already filed do not have to do anything else.

Those who are not required to file 2007 tax returns (e.g., their income is below filing thresholds), but are eligible for rebates will need to file anyway. The IRS has created a special Form 1040A, which highlights only the specific lines that need to be completed. Affected taxpayers include:

  • Low-income earners with earnings of at least $3,000 who do not pay income taxes.
  • Seniors with earnings below $3,000 who receive at least $3,000 of Social Security benefits but are not required to a file a tax return (about 20 million seniors). The same is true for recipients of Railroad Retirement benefits.
  • Veterans with earnings below $3,000 who receive at least $3,000 of disability benefits but are not required to file a tax return (about 250,000 veterans).

How you’ll receive checks

The IRS expects to send out letters to taxpayers informing them of their coming rebate checks.

Rebate checks will be issued separately from any tax refund you are owed on your 2007 return; rebates cannot be applied toward the payment of 2007 taxes.

If you are due a tax refund on your 2007 return and asked that it be deposited directly into your bank account, then your rebate check be deposited directly into the same account.

If you did not specify direct deposit for a refund or were not owed a refund for 2007, you will receive your check in the mail.

If you use a refund anticipation loan, the rebate check will be mailed to you.

When you’ll receive checks

The IRS expects to begin issuing checks in May and expects that all checks for those who filed returns by April 15, 2008, will be completed by the end of the summer.

No check will be issued, however, until a 2007 income tax return has been filed. Individuals who obtain filing extensions will delay the receipt of rebate checks until their returns are filed. No rebate checks will be issued after December 31, 2008.

Second chance rebates

If you did not receive a rebate because your 2007 adjusted gross income exceeded the rebate limits-$87,000 for singles, or $174,000 for joint filers-you may still be entitled to a tax break. If your 2008 income is low enough, you will get credit for the rebate amount on your 2008 return. A special worksheet will help you compute any credit to which you are entitled (no separate check will be used to you; it’s only a credit against your 2008 taxes).

You’re out of luck

Don’t expect to see any check if you have any outstanding tax bills. The IRS will use your rebate amount to reduce your tax balance.

Rebates can also be used to offset certain other non-tax obligations, such as delinquent student loans and past-due child support. You will receive a letter explaining how your rebate check was applied toward your obligations.

Rebates will not be issued to anyone who does not have a valid Social Security number. If you have a valid number but your child does not, you will not receive the additional rebate amount for your child. If you or your spouse has an ITIN, you cannot receive a rebate if you file a joint return; the spouse with a valid Social Security number can obtain a refund if separate returns are filed.

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Tax Glossary

Stock dividend

A distribution of additional shares of a corporation’s stock to its shareholders.

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