A deal that will put “free money” in the hands of an estimated 130 million Americans may deepen the nation’s already steep debt, but that’s a risk worth taking in dire economic times, said University of Tennessee economics professor Matt Murray.
“This is just free money at the expense of the federal government deficit, free money today at the expense of you and I and our children tomorrow,” he said. “But if we believe, and I think most people do, that we’re in a serious economic situation, that’s when the government can legitimately incur deficit to stimulate the economy.”
But news that an estimated 130 million Americans will receive an “economic stimulus” check from Uncle Sam starting in May has caused some confusion about where the money is coming from and whether it will mean smaller income tax refunds in 2009. Last week, CNN.com posted, and then retracted, incorrect information stating the checks intended to rev up the economy would mean smaller refunds next year.
Peggy Parker, an accountant with Chattanooga firm G.R. Rush and Associates, said the rebate money is not taxable and will not mean a smaller income tax refund.
“It is a new tax credit that is above and beyond the normal refund amount,” she said. “You’re getting the credit early.”
The rebate will show up on 2008 tax forms, Ms. Parker said, but not as taxable income or a deduction from any future refund. No matter how anyone crunches the numbers, the check will not put a dent in next year’s return, she said.
“When you prepare your 2008 tax return, there will be a way to compute how much this incentive credit should be,” she said. “If it’s more than what you got, they’ll give you the balance. If it’s less than what you receive, you don’t pay back the excess.”
Staff Photo by Gillian Bolsover -- Annie Fuller helps Erick Mohr fill out a tax return at Liberty Tax on East Brainerd Road. People must have filed their 2007 tax returns to receive the tax rebates as part of the economic stimulus plan.
But until your 2007 taxes are filed, the government won’t have the information it needs to send out the rebate check. That means even people who normally don’t file a return — such as people who receive their income from Social Security or disability — must file a return for 2007 to get a check. For those people, the rebate will be $300.
Pauline Robinson, a 74-year-old retired gift shop manager, said she didn’t know whether she would have to file a return to get the rebate. Because she receives income from Social Security, she doesn’t usually file a return.
“I was just reading about it in the paper ... and I said who should I call? The IRS? Social Security?” she said. “There’s definitely confusion about it, and I have a lot of elderly neighbors who are on disability and Social Security.”
The Harrison resident said she plans to file a return and use her $300 in rebate money to help pay for a new computer.
“The one I have is just so old,” she said.
Erin Noseworthy, 25, said she and her fiance are looking forward to receiving their $600 checks, but she worries about where the money is coming from.
“I think it just seems like this magical gift we’re receiving in the mail,” said Ms. Noseworthy, manager of multimedia interpretive programs at Hunter Museum of American Art. “I thought the country was in debt. It just doesn’t seem like a safe move to me.”
There is some irony in the fact that Americans, who normally are scolded for not saving enough, are being urged by the government to go out and spend this windfall, Dr. Murray said. But unless they buy products made in the United States, the money won’t do much for this country’s economy, he said.
“If you’re worried about the economy, spend it,” Dr. Murray said of the rebate. “But if you buy a product made in China, the stimulus goes overseas.”
2008 Economic Stimulus Payments Fast Facts
* To get a payment, most taxpayers need do nothing but file their 2007 tax return as usual.
* The IRS will calculate the payments based on information from your 2007 tax return and, if you qualify, send you a payment.
* Payments will begin in May.
* Individuals whose 2007 adjusted gross income exceeded $75,000 ($150,000 for married couples filing jointly) may get a reduced payment or no payment at all.
* The payments generally will be a maximum of $600 for eligible individuals and $1,200 for married couples filing jointly. Add $300 for each qualifying child.
* People who have no tax liability but have at least $3,000 income for 2007 from earned income, Social Security benefits, certain Railroad Retirement or certain veterans’ benefits may qualify for a payment but must file a 2007 tax return to get one.
* Individuals who have no tax liability but qualify for a payment generally each will get $300, but only if they file a 2007 tax return.
* The payments will not affect your 2007 or 2008 regular tax refund nor will they have to be paid back. They are not subject to federal tax.
* Taxpayers must have valid Social Security numbers to qualify for a payment.
* The IRS will issue two informational notices about the payments, but taxpayers should be wary of scams such as phone calls or e-mails from IRS imposters soliciting personal information and promising a “rebate” or other type of tax payment. The only form you need to fill out to get a stimulus payment is your 2007 federal tax return.
Check www.irs.gov for details and updates.
Source: Internal Revenue Service
The “refundable recovery rebate credit” is:
* A credit you will receive on your 2008 taxes
* Payment of that tax credit in advance
* Money given above any normal tax refund amount
* Based on your 2007 tax return information
The rebate is not:
* Money taken from your tax refund for 2008
* Taxable income
* Money you will have to repay