Is the economic stimulus payment (rebate) considered taxable income? A few readers have asked that question so I figured I'd address it.
Economic Stimulus Payment is NOT Taxable Income
The simple answer is that the economic stimulus payment (rebate) is not considered taxable income by the IRS. So you won't have to count the stimulus payment in your income for your 2008 taxes. However, you should keep track of how much you received.
Why Not?
The stimulus payment is actually a special advanced tax credit based on your 2008 tax return. Since those returns have been filed yet the IRS is estimating your tax credit based on your 2007 tax return.
This is why so many people are confused. They've heard the stimulus payment is associated with their 2008 taxes. Technically, it is, but practically it's not unless you didn't get your full payment this year.
Keep Your Stimulus Payment Letters
If you didn't get the full amount this year you may qualify next year. Make sure you keep all the letters the IRS sends you regarding the stimulus payment (rebate). The most important one is the letter that lists the payment amount. This will be useful when filing your 2008 taxes.
What the IRS Says
From the IRS Stimulus Payment Site:
Tags Economic Stimulus Government IRS Stimulus Payment Tax Return TaxesQ. Is my stimulus payment taxable?
A. No. You will not owe tax on your payment when you file your 2008 federal income tax return. But you should keep a copy of the IRS letter you receive later this year listing the amount of your payment.
Q. If my stimulus payment is not going to affect my 2008 tax refund or increase the tax I owe next year, why is it I need to retain the letter that lists how much I received?
A. In the event you do not qualify for the full amount on your 2007 return but you do on your 2008 return, you will need to have the letter as a record of the amount you previously received. [New 4/11/08]
Q. Will the payment I receive in 2008 reduce my 2008 refund or increase the amount I owe for 2008?
A. No, the stimulus payment will not reduce your refund or increase the amount you owe when you file your 2008 return.
Related Posts
- Stimulus Payment Notification – What Does It Say?
- Will There be a Second Stimulus Package or Payment?
- Stimulus Payment – Make Too Much? You Might Not Get One
- The Stimulus Payment Was a Ridiculous Political Stunt
- IRS Economic Stimulus Payment Article Index
Comments
12 Comments so far
What if, based on 2007 returns, you qualify for the full amount but in 2008 you would not qualify?
For 2007 we (married, filing jointly) made just under the 150k phase out. For 2008 we will be making 200-225k.
Should we be setting aside a portion of the 1200.00 for sending back to the IRS for 2008 filing?
Bill,
No you will not owe the government if you don't qualify in 2008. The qualification in 2008 is just for those who didn't qualify in 2007.
Thanks for the info Chris.
Has the following information been verified lately?
A. In the event you do not qualify for the full amount on your 2007 return but you do on your 2008 return, you will need to have the letter as a record of the amount you previously received. [New 4/11/08]
When I contacted the IRS last month the rep mentioned that there was initially talk that "if a taxpayer was not elegible on 2007 return that could be elegible for it on the 2008 return" but the gov't was no longer going to do that.
I also notice the statement on the bill that there will be no payments after December 31, 2008 – see below.
http://www.govtrack.us/congress/billtext.xpd?bill=h110-5140
TIMING OF PAYMENTS- The Secretary shall, subject to the provisions of this title, refund or credit any overpayment attributable to this section as rapidly as possible. No refund or credit shall be made or allowed under this subsection after December 31, 2008.
George,
The information as quoted is still on the IRS site.
Unless congress changes the law, I'm not sure how the "gov't [i]s no longer going to do that."
So no, I've heard nothing about a change. If I do I'll post about it.
. Will the payment I receive in 2008 reduce my 2008 refund or increase the amount I owe for 2008?
A. No, the stimulus payment will not reduce your refund or increase the amount you owe when you file your 2008 return.
THIS IS NOT TRUE – MY REFUND WAS SITTING AT $1890 AND I ENTERED THE INFORMATION REGARDING THE AMOUNT OF MY STIMULUS CHECK, $900 AND MY REFUND DROPPED THAT AMOUNT.
IT DOES COUNT AGAINST US…..
I beg to differ with your response as to how the 2008 stimulus payment affects your refund or payment due when filing. Using laymen's terms, I was under the impression that this was a rebate on 2007 taxes. (Definition of rebate – A deduction from an amount to be paid or a return of part of an amount given in payment). Wrong! It actually is an advance against taxes owed in 2008. When you file your return in 2009, it is calculated against your tax credits. So, your expected refund is reduced directly by the amount of the stimulus payment or your taxes owed are increased directly by the amount of the stimulus payment. This is not free money. It was your money you paid towards your 2008 taxes. Instead of paying at the time owed, you pay it when you file in 2009. If I am misinformed, please let me know. I hope somone can tell me I am wrong and set me straight.
Barb
"This is not free money. It was your money you paid towards your 2008 taxes. Instead of paying at the time owed, you pay it when you file in 2009. "
Myself and everone I have spoken to apparently are idiots then because EVERYONE I have talked to was under the impression that this was FREE money the way they presented it was in effect False advertisement if you ask me – teach us to trust the government. Should have known it was too good to be true. I mean heck only the big automakers and banks can get bailed out for free – not the person who goes to work everyday and is trying to make ends meet.
The amount of your stimulus refund will absolutely affect the amount of your 2008 refund…….
Sorry for the wrong info. Several people totally misinformed me. After filing my own taxes, the stimulus check has no affect at all unless you did not receive the full credit amount. Sorry that my confusion and the confusion of so many others has now included you.
Well, it certainly affected our refund! Without the tax rebate entered, we were getting a refund of over $1200. With it entered, we now owe $900. Hate to tell you, but the rebate affected our IRS return!
Dayna, I feel your frustration. We, too, are in the same boat. We were showing a refund due to us, and now as a result of entering the stimulus information we now OWE the government too! So it does affect people's return, event he IRS website is full of it, because it clearly states, as mentioned above, that it will not reduce the refund amount or increase the amount you owe. Clearly FALSE!