Tax Tips

Tax Tips are provided by
Wood, Johnson, Heath, P.C.
8200 North Mopac, Suite 110, Austin, Texas 78759
Tel: 512-343-8075 - E-mail: info@wjh-cpa.com - Web: www.wjh-cpa.com
Certified Public Accountants, Financial Advisors, Management Consultants, Outsourced Service Provider

NOTE: The information in these tips is not intended to constitute legal, accounting, tax, investment, consulting, or other professional advice or services. For specific information that applies to your circumstances you should consult a qualified professional advisor.

April 2008
Rebate Checks

Rebate Checks

The Act includes a refundable recovery rebate credit for 2008. Even though this credit is a 2008 tax credit, starting in May 2008, rebate checks will be issued based on 2007 tax return data. The credit is computed with two components: the basic credit and the qualifying child credit.

Eligible individuals are generally entitled to a basic credit equal to the greater of:

Net income tax liability (generally, total tax liability less nonrefundable tax credits other than the child credit) up to $600 ($1,200 in the case of a joint return)
$300 ($600 in the case of a joint return) if an individual has either (1) a minimum of $3,000 in earned income, Social Security benefits, and veterans' disability payments; or (2) a net income tax liability of at least $1, and gross income greater than $8,950 for single individuals and married individuals filing separate returns; $17,900 for married individuals filing a joint return; or $11,500 for individuals filing as head of household

If you're eligible for any portion of the basic credit, you may also be eligible for a credit of $300 per qualifying child. In general, you're eligible to claim a $300 credit for each child who:

Qualifies as your dependent, and
Is under age 17 (and will not reach age 17 in 2008), and
Is your son, daughter, stepchild, sibling, stepbrother, stepsister, or a child or grandchild of one of these individuals

Who Is Eligible?

· Any individual other than a resident alien or a dependent

· Estates and trusts do not qualify

· Must have a valid taxpayer identification number

Note that individuals must file a federal income tax return to receive a rebate check. So, if you qualify you should file a federal income tax return for 2007 even if you are not otherwise required to do so.

Higher Income Limitations

The recovery rebate credit is phased out for individuals with higher incomes. Specifically, your total rebate credit (the sum of both the basic credit and any qualifying child credit) is reduced by 5% of the amount by which your Adjusted Gross Income (AGI) exceeds $75,000 ($150,000 if you file a joint return with your spouse).

For example, a married couple filing a joint return with two qualifying children is potentially eligible for a total rebate credit of $1,800 ($1,200 basic credit and $300 per qualifying child), assuming their net income tax liability is at least $1,200. If the combined AGI of the couple is $160,000, however, they will be entitled to a credit of only $1,300 (their AGI exceeds $150,000 by $10,000; 5% of $10,000 is $500; $1,800 - $500 $1,300). If the combined AGI of the couple was $186,000, they would be entitled to no rebate credit at all.

Assuming that you're otherwise entitled to the full basic credit, your total rebate credit is limited (or phased out entirely) according to the following AGI ranges:

Table A. Individuals Who File Married Filing Jointly			Table B. All Other Individuals
Qualifying Children	Phaseout Begins	No Credit After	Qualifying Children	Phaseout Begins	No Credit After
No Children	$150,000 AGI	$174,000 AGI	No Children	$75,000 AGI	$87,000 AGI
1 Child	$150,000 AGI	$180,000 AGI	1 Child	$75,000 AGI	$93,000 AGI
2 Children	$150,000 AGI	$186,000 AGI	2 Children	$75,000 AGI	$99,000 AGI
3 Children	$150,000 AGI	$192,000 AGI	3 Children	$75,000 AGI	$105,000 AGI
4 Children	$150,000 AGI	$198,000 AGI	4 Children	$75,000 AGI	$111,000 AGI

Rebate checks: Other considerations
When you file your 2008 federal income tax return in 2009, you'll reconcile the amount of the credit you're entitled to with any rebate payment you've received. If it turns out that you're actually entitled to a larger credit based on your 2008 tax return, you'll get the difference as a tax credit. But, if it turns out you should have received less than you got as a rebate check, you won't have to pay back the difference. The IRS has announced that rebate checks will be mailed out beginning in May, and payments will continue through the spring and summer. Rebate checks will be directly deposited if you select that option on your 2007 federal income tax return. If you file your 2007 federal income tax return after April 15 (even if you file a valid extension), you will receive your payment later. The Department of the Treasury will not issue checks after December 31, 2008.

If you have any questions as to how these rules apply to your particular situation, please do not hesitate to call the Certified Public Accountants at Wood, Johnson, Heath, P.C. at 512-343-8075.