Ruggiero, Martinez & Norton, P.A.
Certified Public Accountants & Consultants
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Ruggiero, Martinez & Norton, P.A. Certified Public Accountants & Consultants |
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By now everyone is aware of congressional efforts to stimulate the U.S. economy. The major centerpiece of the legislation just signed into law is a provision to send many Americans a rebate check. The hope is that taxpayers will spend the money they receive and stimulate the economy. Rebate checks should start going out by late spring. Eligibility, Amount and Phase-Out The rebate amount, based on tax liability, will be up to $600 for individuals and $1,200 for married couples filing jointly, and an additional $300 for each qualifying child (“qualifying children” under the child tax credit rules can include grandchildren and nieces and nephews). There is no cap on the amount of qualifying children that may be eligible for the rebate. The rebate amount will begin to phase out for taxpayers with adjusted gross incomes above $75,000 or $150,000 for married couples filing jointly. The rebate is reduced by 5% of the amount of a taxpayer's AGI that exceeds the threshold amounts. Therefore, for an individual with no children, the rebate will be zero if that person's AGI is $87,000 or above. In order to be eligible for the rebate, a 2007 tax return must be filed. The earlier your return is filed, the earlier you could receive your rebate. Therefore, we should make sure your return is filed by the due date, including extensions, as the government is not authorized to send out any checks after December 31, 2008. A $300 ($600 for joint filers) rebate will also go to low-income taxpayers with little or no tax liability if the individual has: (1) qualifying income of at least $3,000; or (2) net income tax liability of at least $1 and gross income greater than the sum of the applicable basic standard deduction amount and personal exemption (twice the exemption amount for joint returns). Qualifying income includes earned income, social security benefits, and veteran disability benefits. Many retirees who depend primarily upon Social Security income may not file a tax return, due to the full or partial exclusion of Social Security benefits from taxable income. These retirees should file a 2007 return if they have at least $3,000 in Social Security income, as it will qualify them for the rebate. The rebate check will not lower your 2008 refund, if any. However, the 2007 rebate check will be reconciled on your 2008 return. The actual credit will be calculated on your 2008 return. If you are due a higher credit, you will get the remainder; if you should have received a lower credit/rebate, you will not have to pay back such amount. Thus, some taxpayers may be eligible for a higher credit in 2008 due to a change in circumstances. For example, an AGI below the threshold amount or having a child. Nonresident aliens, estates or trusts, or individuals claimed as a dependent on another taxpayer's return cannot qualify for the rebate. In order to receive a rebate, the taxpayer's, the taxpayer's spouse's, and the taxpayer's children's social security number must be included on the tax return. ITINs issued by the IRS are not eligible identification numbers for this purpose. Payment of the credit (or the check) is treated, for all purposes, as a payment of tax. Any resulting overpayment under this provision is subject to the refund offset provisions, such as those applicable to past-due child support. For joint return taxpayers, the refund is considered to be one-half for each individual spouse. Planning for the Rebate Even though the 2007 tax year has ended, there are still actions that you may take to ensure that your income is not too low or too high to qualify for the rebate. In addition, we can plan ahead for 2008 to help you qualify if your income for 2007 phased you out of the rebate. If you are self-employed, and your “qualifying income” may fall below the $3,000 threshold, we should consider whether there are ways in which we could defer some of your Schedule C deductions, such as accelerated depreciation, to future years. We may be able to increase your net self-employment income to $3,000 and qualify you for the rebate. Of course, we will have to be sure that any increase in 2007 tax does not outweigh the benefit of the rebate. If your expect your 2007 adjusted gross income to be above the $75,000/$150,000 level at which the rebate begins to phase out, we should consider whether there are ways in which we can reduce your AGI to a level that qualifies you for a full rebate. In some cases, this can be accomplished by making deductible 2007 contributions to an IRA or retirement plan before April 15, 2008. For 2008, you could lower your income using the same strategy or selling stocks at a loss. Also, if you have or adopt a child in 2008, you could be eligible for an additional $300. If your rebate is going to be phased out, and you have older children, we should also look closely at whether those children have sufficient “qualifying income” to independently qualify for a rebate. Very truly yours, RUGGIERO, MARTINEZ & NORTON, P.A. |
Last modified: 11/21/07 |
