Tax Tips

The Economic Stimulus Act of 2008 (HR 5140) provided stimulus payments to more than 130 million individuals. The stimulus payments were sent late spring and summer of 2008 according to the last 2 numbers of your social security number and method of payment (direct deposit or paper check).

If you received a tax refund and chose to have it directly deposited, you would receive your economic stimulus payment by direct deposit also (certain rules apply). Otherwise, you would receive a paper check.

The majority of people receiving a payment only need to file a 2007 tax return as they normally would. The IRS will then do all the rest, including determining eligibility and payment amounts.

Recovery Rebates

Amount of rebate:

• $600 ($1,200 for joint returns)
• Net income tax liability if lower than $600, but not less than $300 ($600 for joint returns)
• Rebate increased by $300 for each qualifying child (generally, a child that qualifies for the Child Tax Credit)
• Fully refundable

Eligible individuals must have either of the following:

1. Qualifying income of at least $3,000 (qualifying income is defined as earned income, social security benefits, and/or disability benefits paid to veterans and surviving spouses).
2. Net income tax liability of at least $1 and gross income that is more than the applicable standard deduction + 1 exemption amount (2 exemptions for Married Filing Jointly). Generally, net income tax liability is the regular tax + AMT (if any) less allowable credits other than the Child Tax Credit and refundable credits, such as the Earned Income Credit.

The act does not apply to nonresident aliens, individuals who could be claimed as dependents, individuals who do not have valid SSNs, and estates and trusts.

Phaseout

The rebate is reduced by 5% of adjusted gross income exceeding $75,000 ($150,000 for joint returns).

So for taxpayers without children, the maximum rebate is fully phased out at $87,000 ($174,000 for joint returns).

Business Provisions

Under the bill, the Section 179 deduction increased to $250,000 (phaseout to start at $800,000) for 2008 (amounts would have been $128,000 and $510,000, respectively).

There will be a 50% bonus depreciation for property placed in service in 2008. Both provisions apply to 2008 only.

Military Provisions

Military personnel serving in combat zones have the option of including nontaxable combat pay on their 2007 or 2008 income tax returns if it helps their eligibility for the 2008 economic stimulus payments.

To receive the stimulus payment this year, combat zone personnel or their spouses must file a 2007 income tax return by Oct. 15. Otherwise, they can claim the economic stimulus payment on next year's income tax return.

Military personnel who normally wouldn't file a return can file a simple Form 1040A to receive an economic stimulus payment. They should report their nontaxable combat pay on Line 40b of the Form 1040A to show at least $3,000 in qualifying income.