RISMEDIA, March 4, 2008-(MCT)-The Internal Revenue Service has gone into myth-busting mode. Just weeks after Congress passed an economic stimulus package that includes so-called “rebate” payments for about 130 million taxpayers, rumors and misconceptions abound over who is eligible and how to get the money.
The IRS has been busy releasing notices to clarify what’s going on, with plans to send out letters this week reminding people to file 2007 tax returns in order to receive their economic stimulus payments.
Here are some other morsels you might need to chew on when it comes to your stimulus payment.
Myth: You have to report the stimulus payment you receive this year as income and pay tax on it.
Fact: The payments are not taxable and will not negatively affect the 2008 tax return you file in 2009.
Myth: Economic stimulus payments will reduce your refund when you file your taxes next year.
Fact: Not only will the payment not reduce your refund, but if you receive less than the maximum amount, you could receive an additional credit amount, up to the maximum, on your return next year. If your stimulus payment is more than the credit calculated on your return next year, you do not have to repay the difference. (The maximum amount is up to $600 for individuals or $1,200 for married couples filing jointly, plus up to $300 for each qualifying child.)
Myth: Filing taxes is so hard, you can’t possibly do them yourself, and professionals are too expensive.
Fact: People not normally required to file can use a special, simple version of Form 1040A to qualify for the payment, only needing to fill out a few lines of the form. And there are dozens of free tax preparation sites in the Tucson area for low-income and elderly taxpayers. To locate such a site, call 1-800-906-9887 or 1-800-352-3792.
Myth: Payments are automatic for everyone. You don’t need to do anything but keep checking your mail in anticipation of its arrival.
Fact: You must file a federal tax return in order to receive it. If you are one of millions of people who don’t normally file a tax return, but got at least $3,000 in Social Security, railroad retirement or certain veterans’ benefits, or if you have a small amount of earned income, you need to file a Form 1040A to receive a minimum payment of $300 for individuals or $600 for married couples.
Myth: Payments won’t be mailed until July or later, which doesn’t help when you need your money now.
Fact: Payments will begin going out starting in early May and will continue through the summer.
The IRS has yet to release the 2008 stimulus payment direct deposit and mail-out schedule. The fastest way to get your payment is to electronically file your taxes and have the money directly deposited into your bank account.
Myth: Everyone is eligible for a stimulus payment.
Fact: Lots of people aren’t going to get it. People who have less than $3,000 in qualifying income who wouldn’t otherwise file a return, “nonresident aliens,” people who don’t have a valid Social Security number, those who can be claimed as dependents on someone else’s return, and anyone who files a Form 1040NR, Form 1040PR or Form 1040SS are not eligible. Also, anyone with an income above the level at which the stimulus payment gradually reduces until it is phased out will not get a stimulus payment. Phase-out income levels begin at $75,000 for a single head of household or $150,000 for married filing jointly.
Although the purpose of the stimulus payments, or “rebates” as some people call them, is ostensibly to encourage consumers to continue spending in a weakened economy, the Association of Independent Consumer Credit Counseling Agencies suggests people first evaluate whether they are in a “personal recession.”
The association encourages you to ask yourself if you have done any of the following in the past three months:
—Saved any portion of your income in a savings or money market account
—Decreased your credit card balances
—Paid all of your other monthly obligations in full
—Contributed to a retirement account
If you answered “no” to two or more, the association says you may be in a personal recession and suggests you:
—Stop charging additional purchases to your existing credit card balances.
—Create and use a barebones budget of necessary expenses including housing, transportation, insurance, food and utilities, and use any money leftover to pay down debt and start an emergency savings account. Use your stimulus money to pay down debt as well instead of incurring more, and stick to this budget until you can answer “yes” to all four questions.
—Seek help from a qualified credit counseling agency if you can’t meet your basic monthly expenses.
Copyright © 2008, The Arizona Daily Star, Tucson
Distributed by McClatchy-Tribune Information Services.