How much do I get from the tax rebate plan?

John W. Schoen Senior producer • Profile • E-mail

The idea is remarkably simple: To get the economy moving again, you need to get people in a spending mood. What could be simpler than handing out tax rebates? Alas, as with all things related to the U.S. Tax Code, the question of who gets what turns out to be not so simple.

Now that the Senate has finished tinkering with the plan originally hatched in the House, and President Bush has said he’ll sign the $168 billion package, the folks at the Treasury are busy getting the word out about just who gets what.

The basic plan includes a $300 tax rebate for most people who earned income in 2007. Many will get rebates of $600 each, or $1,200 per couple. If you have children who qualify as dependents, you get another $300 for each child. If you earned at least $3,000 last year, but not enough to pay income taxes, you still get at least $300.

Now the fun begins.

Will I get a rebate check even though I owe the IRS?
— Tamara C., Fort Worth, Texas

No. If you owe taxes, the IRS will withhold your rebate and apply it to what you owe, according to a Treasury Department spokesman.

What the IRS is doing is cutting your tax bill. For example, if you owed $1,000 in taxes on the income you earned in 2007, now you owe $700. If you had exactly the right amount withheld, you’ll get a rebate check for the exact amount you’re entitled to. If had too much tax withheld, you’ll get a rebate plus a refund of any extra tax withheld during the year.

If you didn’t have enough withheld from your paycheck to cover your new, lower tax bill, you’ll still owe taxes. So instead of mailing you the check and having you mail it back, the IRS will just hold onto it and apply it to your bill. But when you pay what you owe, you’ll write a smaller check than you would have without the rebate.

With regards to the upcoming stimulus package, are the phase-out figures ($75,000 and $150,000) adjusted gross income or are they gross income prior to adjustment?
— Mark Z. Elma, New York

The limits are based on your adjusted gross income. So you really won’t know if you’re over the limit until you fill out your 1040 for the 2007 calendar year, adding up all your income and subtracting all your deductions.

For people who file an individual return, the rebates “phase out” at $75,000 of adjusted gross income; the limit is $150,000 of AGI for couples who file jointly. Above those amounts, the phase-out clips your rebate by 5 percent of any amount over the limit. So if you’re single and earned $80,000, you’ll get $350. (That's $600 minus 5 percent of the $5,000 you earned over the $75,000 limit, for a reduction of $250.) That effectively caps eligibility at $87,000 in income for singles and $174,000 for couples.

If you earned more than those limits in 2007, you get nothing. Unless you have kids. In that case, you get $300 per kid. But you could lose that too if you earned enough to burn off your child credit with the 5 percent phase-out. That would happen to a married couple with one child and income of $180,000 last year; the first $24,000 over the limit would burn up their individual credits and the next $6,000 would eliminate the $300 child credit.

For divorced couples with joint custody, the “kiddie” rebate goes to the parent who claims the child as a dependent in 2007. (Only one parent’s return can do so.)

But if you collect the $300 for a child, they won’t get a rebate on any tax they owe, say, from a summer job. So if your child earned $3,000 or more and you have a choice of whether to claim the child or not, your family could get a bigger rebate if you don’t claim your kid as a deduction. You’ll only get $300, but the child could get as much as $600 if she files for the rebate on her own. On the other hand, you’ll lose the $3,400 exemption for claiming your kid as a dependent. (Still with us?)

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