Economic Stimulus Act of 2008 [H.R. 5140]

On February 13, President Bush signed the stimulus package designed to put money into the American economy by providing taxpayers with rebate checks. Along with the rebate checks, the bill contains some business incentives.

Tax Rebates for Individuals

The rebate proposal has two components. The first is an amount based on filing status and income tax liability, and the second is an increase in the child tax credit.

Taxpayers must have a valid social security number for all persons listed on the tax return who are taken into account for purposes of determining the credit. Taxpayers, who have a valid Taxpayer Identification Number (TIN), but not a social security number, do not qualify for the rebate.

Taxpayers who can be claimed as a dependent on another taxpayer’s return, a nonresident alien, estates, and trusts are not entitled to the tax rebate.

Eligibility for the rebate is based on the taxpayer’s 2007 income tax return. It is anticipated that the Department of the Treasury will make every effort to issue all payments as rapidly as possible to taxpayers who timely filed their 2007 tax returns. Taxpayers who file late, or file an extension, will receive their payments later.

The IRS has indicated that they will begin mailing the rebate checks in late spring and continue through December 31, 2008. 

Recipients of Social Security, Railroad Retirement, and certain veterans’ benefits should report their 2007 benefits on Line 14a of Form 1040A or Line 20a of Form 1040. Taxpayers who already have filed but failed to report these benefits can file an amended return by using Form 1040X to ensure they receive their rebate.

For taxpayers who elect direct deposit for their 2007 income tax refund, their rebate check will also be deposited directly into that same bank account.

Most taxpayers will receive two notices from the IRS. The first general notice from the IRS will explain the stimulus payment program. The second notice will confirm the recipients’ eligibility, the payment amount, and the approximate timetable for the payment. Taxpayers will need to save this notice to assist them when they prepare their 2008 tax return next year.

On their 2008 tax return, taxpayers will reconcile the amount of the credit with the payment they receive by completing a worksheet calculating the amount of the credit based on their 2008 tax return. They would then subtract from the credit the amount of the payment they received. For many taxpayers, these two amounts would be the same.

If the result is a positive number because the taxpayer paid no tax in 2007, but is paying tax in 2008, the taxpayer may claim that amount as a credit against 2008 tax liability. If the result is negative because the taxpayer paid tax in 2007, but owes no tax for 2008, the taxpayer is not required to repay that amount to the Treasury. Otherwise, the rebate checks have no effect on tax returns filed in 2009; the amount is not includible in gross income and it does not otherwise reduce the amount of withholding.

No refund or credit will be made or allowed after December 31, 2008. There will be no interest paid on any overpayment resulting from this advance rebate.

Basic Credit

• The taxpayer must have a net tax liability greater than zero and gross income which is greater than the sum of the basic standard deduction plus the personal exemption amount (twice the exemption amount in the case of a joint return); OR

• The taxpayer must have at least $3,000 of qualifying income. Qualifying income includes:

o Earned income.

o Veteran’s disability payments (including payments to survivors).

o Social security benefits.

• The minimum rebate amount is $300 ($600 if married filing jointly).

• The maximum rebate amount is $600 ($1,200 if married filing jointly).

• The taxpayer’s rebate under this credit will be equal to the minimum of his tax liability or 10% of the first $6,000 of taxable income ($12,000 if married filing jointly).

• The maximum credit is capped for taxpayers whose adjusted gross income (AGI) exceeds $75,000 ($150,000 for joint returns). The basic rebate, including the qualifying child credit will be reduced by 5% of the amount of the taxpayers’ AGI in excess of the thresholds.

Qualifying Child Credit

• Taxpayers who receive at least $1 of the rebate will receive an additional $300 for each qualifying child.

• This payment is refundable, meaning the recipient is entitled to the full child credit without regard to income tax liability.

Business Tax Provisions

Section 179 Expense Deduction

• The Section 179 expense election increases to $250,000.

• The qualified property limitation is $800,000.

• These increased amounts will not be indexed for inflation under Sec. 179(b)(5).

• Effective for tax years beginning after December 31, 2007.

Bonus Depreciation

• Businesses are allowed to depreciate an additional 50% of the cost of certain property. Eligible property includes:

o Tangible property that had a recovery period not exceeding 20 years;

o Purchased computer software;

o Water utility property; and

o Qualified leasehold improvement property.

• The bonus depreciation will be allowed under the alternative minimum tax (AMT).

• Effective for property placed in service after December 31, 2007.

Other Provisions

The stimulus package also increases loan limits for the Federal Housing Authority (FHA) Single-Family Program. The new law raises FHA's loan limit - the dollar amount of a mortgage that FHA can insure - for its single-family program from 87% of the conforming loan amount to as high as 175% (effectively $362,790 to $729,750) in certain geographic regions where the cost of housing is very high.

In less expensive markets, the increase is from 48% to 65% (effectively $200,160 to $271,050) of the conforming loan limit. FHA would also have the authority to raise those loan limits by up to an additional $100,000 if market conditions warrant such increases.

If a return is not filed, the taxpayer will not receive a check even if they may otherwise qualify. Many of the taxpayers who fall into this category are not required to file because of low income. If a return is filed for these taxpayers, the IRS will send them a rebate check provided their qualified income is at least $3,000.

If you are not required to file Income Tax returns, contact us to complete a Form 1040 EZ to qualify for this program.