LizzyBee and others - about that tax refund ("rebate")

[Janna]

LizzyBee, I am quoting you from an earlier post here: The terminology I used in my earlier post is bothering me. Just as others have pointed out that this rebate isn't exactly a rebate, it isn't exactly a tax cut either. But my point was that you won't be penalized on your 2008 tax return, and that point still stands.

I just read an article on MSN Money about this "rebate" (which I agree with the others is not an accurate term for this). It says: Here's how the rebates are being figured at this point: The rebates are tied to a reduction of the 10% bracket from 10% to zero for the first $6,000 of taxable income in 2008, Luscombe said. "I guess they need some legal basis to give a rebate check, so that's what they came up with," he said. "That would be tied to the 2008 return. That's similar to 2001, so basically you would reflect the rebate check as sort of a prepayment on your 2008 return."

Isn't that saying that this "rebate" will in fact be taken from our 2008 tax return? That's how I interpret it anyway, but am very willing to listen to how others interpret it. It just makes me wonder if this stimulation of the economy now (and I wholeheartedly agree with Colleen who wonders "who's economy will we really be stimulating?") will only put us back in this same position next year. People aren't going to remember they got this check when it comes time for their refund in 2008, kwim? And as others said, the gov't isn't just going to hand out free money.

I guess I'm just looking for clarification on your above statement. You seem so sure it won't have anything to do with the 2008 taxes, but I'm reading otherwise.

Thanks,

[LizzyBee]

In one post, I called the rebate a tax cut because I was trying to explain that the payment will not be simply an advance payment of the tax refund you might otherwise receive in spring 2009. Later, in the post you quoted, I was trying to say that it's not a tax cut in the traditional sense; therefore, the terminology I used bothered me, because I didn't want to be misunderstood. It's a one-time only payment, and there will be people who receive the rebate who don't pay any taxes.

In an earlier post, I said that I imagine there will be a way to claim the refund on your 2008 tax return if for some reason you don't qualify to have the check mailed to you in June. So yes, it will affect your 2008 tax return. But a lot of people are concerned that their 2008 tax liability will be the same as it otherwise would have been, but by receiving a "rebate" in June, their refund in spring 2009 will be reduced or they might even owe money. I was trying to explain that it won't work that way. I hadn't yet heard the mechanics of how the tax cut or credit related to the rebate would work (your post is the first I've read regarding that issue), but I know with 100% certainty that the payments will be related to some sort of tax cut or credit. That was the issue I was addressing. I'm also 99.99% certain the tax cut or credit will be temporary, which is why, in my mind, it's not a tax cut in the traditional sense.

Clear as mud?

[Just Me]

So, LizzieBee, (and I am glad to see you, by the way!), do you think this will reduce our 2008 return, or cause us to owe in 2008?

I am just hearing about this, and am a little confused myself. I remember getting these checks a few years ago, and do not remember them affecting the next year's tax returns. But I would like clarification, because our taxes will be different this year due to Dh working full-time for the first time in 4 years!! I have adjusted our withholdings so that we don't owe, and will not get a big refund, but I do not want this "rebate" to affect that.

Confused yet? 'Cause I certainly am!! :rolleyes:

Thanks!

[LizzyBee]

So, LizzieBee, (and I am glad to see you, by the way!), do you think this will reduce our 2008 return, or cause us to owe in 2008?

Neither. The rebate will have no effect one way or the other on your refund (or not) in spring 2009. The return will have some mechanism (in the form of some tax cut, credit, or both combined) for reducing your 2008 tax liability, and that reduction will be offset by the advance payment which will most likely be paid in June. It will be a net zero effect for most people.

Just as in 2001, there may be a few people who receive the rebate and shouldn't or vice versa. In 2001, the limitations placed on the advance payment insured that very few people received it if they weren't entitled to it, and I'm pretty sure I'm remembering correctly that those people were not required to repay the advance payment. OTOH, there were people who were entitled to the advance payment but didn't receive it, and they were able to receive it as an addition to their refund when they filed their 2001 tax return. But for the overwhelming majority of taxpayers, the advance payment had a net zero effect, and it will be the same way this year.

I hope that helps. Of course, no-one knows all the particulars, since the final bill hasn't even been passed yet. I'm actually not holding my breath to receive any payment, although it does seem as though nearly all the powers-that-be are on board with it.

[Just Me]

Thanks Elizabeth! I understand now, and like you, am not holding my breath (yet!)

:D

[Melissa in NC]

So, we are bailing out the mortgage industry, fighting a war and getting a rebate. In the long run, are we robbing Peter to pay Paul?? Where has fiscal responsibilty gone? Isn't the country already in $9 trillion dollar of debt?

I would love to get a rebate. But I fear for the long term for our economy. Who is going to raise the taxes or cut services to pay off the debt? The train is running a full speed but the bridge in the distance has collasped.

[Janna]

Who is going to raise the taxes or cut services to pay off the debt? The train is running a full speed but the bridge in the distance has collasped.

Yes, I feel the same way. It makes me very nervous. What I don't like the most about it though is that I don't have a choice in whether I get the money or not. There is no applying for it, it will just show up in my mailbox one day. I wish there were a way to say "no, thank you". I love your last line about the train.

[Janna]

I guess I'm still not fully understanding. According to that article that I quoted, it was sort of a "prepayment" on the 2008 taxes. To me that says it's like a "Check into Cash" place where we are getting an advance on next years' taxes.

I need to re-read your message slowly and try to understand it better. Thanks very much for your reply!

[jail warden]

Actually we aren't bailing out the mortgage companies. They get no money from the government from what I understand. The government just got the mortgage companies to agree to not up the interest rate for sub-prime loans the next time they have a chance to.

[LizzyBee]

Just as in 2001, there may be a few people who receive the rebate and shouldn't or vice versa. In 2001, the limitations placed on the advance payment insured that very few people received it if they weren't entitled to it, and I'm pretty sure I'm remembering correctly that those people were not required to repay the advance payment. OTOH, there were people who were entitled to the advance payment but didn't receive it, and they were able to receive it as an addition to their refund when they filed their 2001 tax return. But for the overwhelming majority of taxpayers, the advance payment had a net zero effect, and it will be the same way this year.

This is driving me bonkers, because I'm trying so hard to be clear, but every time I re-read my messages I realize that what I wrote could be taken more than one way.

In the above paragraph, last sentence: The intent (and result, for most people) will be a net zero effect [I]when you file your 2008 tax return.[I] Your refund or balance due should not be more or less than it otherwise would have been. The rebate itself will create an increase of cash in your pocket, not a net zero effect. Even though the rebate will likely be shown as an advance payment on your 2008 tax return, it will be offset by a decrease of your 2008 tax liability. No-one knows yet exactly what form the decrease will take: a reduction of the tax rate, a credit, a combination of both, or just a separate line on the tax return. But the point of the stimulus package is to put more money in your pocket overall; it's not something that you're going to get in June and then repay next spring when you file your tax return.

Okay, I feel like I've said the same thing 47 different ways in the past 2 days and I'm still not sure I'm being clear. :o But I hope this helps.

[j.griff]

It is a prepayment, but it's not going to cost you anything. Does that make sense? You are going to get more money for tax returns for 2008, you'll just get some of it ahead of time (IF they pass this bill, and IF you qualify). It's not going to cause you to get less money for your returns when you file next year. BUT, if you do qualify and for some reason don't get the advance payment (IF they do them) then you will receive that extra money next year when you file. I hope that makes sense.

[Janna]

That does make sense, but I haven't seen that anywhere. Do you happen to have a source for that info? I know it keeps changing and nothing is set in stone because this whole thing hasn't even been passed yet, but I'm still curious. Thanks!

[LizzyBee]

If the rebate were just an advance payment of the refund that you would otherwise receive in spring 2009 when you file your 2008 tax return:

1) How would the IRS determine how much refund you should expect to get halfway through the year?
2) What about people who make estimated payments rather than have tax withheld from a salary? What would be the point of sending them a rebate?
3) When people get the rebate, most of them are going to spend it (and that's what the government wants them to do). Then next spring the IRS is supposed to collect it back? Ain't gonna happen!!!! Our government does some stupid things, but they aren't going to issue a refund to 117 million people then try to collect it back less than a year later.
4) Congress is debating the form of the tax cut underlying the rebate. If the rebate was simply an advance payment and not a temporary tax cut, there would be no need for this discussion.