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Economic stimulus plan: The check is in the mail

By Rob Smith, Ceridian manager of Government Relations

The economy is on the brink of a recession triggered by the subprime mortgage market meltdown. Congress recently passed a $163 billion economic stimulus plan. The goal is to give the country a little extra spending money to pump up the lagging economy. Starting in May 2008, most individuals will receive a $600 tax rebate check and most married couples filing jointly will receive $1,200 from the U.S. Treasury after filing their 2007 tax return. So, now all that is left to do is sit back and wait for the checks to come rolling in, right? Not so fast.

File a 2007 tax return
The tax rebates will be based on taxpayers' federal tax filings for 2007, so people need to file a tax return if they want to receive their economic stimulus check. The amount of the check will be calculated using the amount an individual paid in taxes for 2007. If a person filing singly paid at least $600 in taxes or a married couple filing jointly paid at least $1,200 in taxes they would receive that much from the U.S. Treasury. The checks top out at $600 (single) and $1,200 (joint). Taxpayers who paid more than that amount in 2007 taxes should not expect a larger check.

Income and children determine amount
Calculating the rebate for taxpayers who paid less than $600 is more complicated and may leave many disappointed if they expect to receive the full amount. Basically, individuals who paid under $600 in 2007 federal income taxes will receive a check for however much they paid. For example, a taxpayer with an adjusted gross income of $12,000 for 2007 would have a federal income tax liability of $325, so the rebate check would be $325. A married couple with a gross income of $25,000 and a tax liability of $750 would receive $750.

To assist people who earn little, the new law will provide people who made at least $3,000 in income in 2007 with a flat rebate of $300 for single filers and $600 for married couples. Taxpayers with incomes under $3,000 are not eligible for the stimulus checks.

On the other end of the income spectrum, the rebate is gradually phased out for individuals filing singly with a 2007 gross income of $75,000 or more and couples filing jointly who made $150,000 or more. The rebate will be reduced $50 for every $1,000 the individual or couple made over the income limit. Individuals who made over $87,000 and couples who made over $176,000 are not eligible for the rebate.

Taxpayers who have children are eligible for an additional rebate under the new law. Individual filers or married couples will receive $300 per child under the age of 17 as of December 31, 2008. The child rebate phases out with the income limits. Taxpayers who are claimed as a dependent on someone else's federal tax return, such as many college and high school age workers, are not eligible for the rebate.

Alert for seniors, veterans and railroad retirees
The law also allows people who receive at least $3,000 in Social Security, railroad retirement or veteran benefits to qualify for a $300 check for individuals filing singly or $600 for couples filing jointly. Many who receive these federal benefits do not usually file a tax return, but they will need to file a return for 2007.

Even if beneficiaries of these programs ordinarily would not need to file a 2007 tax return, they must complete an IRS 1040 or 1040a form to receive their checks. Supplemental Social Security payments do not count toward the $3,000 eligibility mark.

According to the IRS, people may estimate their annual Social Security, railroad retirement or veterans benefit by taking their monthly benefit, multiplying it by the number of months during the year that they received benefits and entering the number on Line 20a of Form 1040 or Line 14a of Form 1040a. Some individuals may have received a record of their benefits on Form 1099-RRB for railroad retirement benefits or Form 1099-SSA for Social Security benefits earlier in the year.

Line 20a of Form 1040 and Line 14a of Form 1040a refer only to Social Security benefits, but the IRS has said that these lines should be used to report veterans and railroad retirement benefits to qualify for the stimulus checks. The filer must write "stimulus payment" on top of the 1040 or 1040a form if he or she is filing to receive that payment.

It is also possible for filers to combine the eligible benefits with earned income in order to reach the $3,000 mark. People who have already filed without making these adjustments can amend their returns by filing a Form 1040x.

Regardless of what rebate taxpayers qualify for, the stimulus checks should be in the mail by May or June. The IRS needs to process the 2007 tax returns that are due on April 15 in order to calculate and process taxpayers' rebate checks. So it literally pays to file taxes on time.

Small businesses and mortgage holders will benefit
The package also provides significant tax breaks to small businesses. Under the plan, qualified small businesses will be able to write off $250,000 worth of expenses -- up from the current $125,000 limit -- and can deduct an additional 50 percent of the cost of certain investments for 2008.

The plan also aims to help ease mortgage market troubles. The mortgage dollar amount that government-sponsored Freddie Mac and Fannie Mae can guarantee has increased from $417,000 to over $700,000 for individuals who live in areas with high median housing prices. This increase allows potential homebuyers to qualify for lower interest mortgages, and qualifying homeowners with existing mortgages will be able to refinance for a lower rate.

Spend away
Only time will tell whether the economic stimulus plan will provide the impetus the economy needs to pull the United States back from the brink of recession. Several banks have suffered multi-million dollar losses in the wake of a subprime mortgage crisis, and it will take a quick and significant boost in consumer spending to offset the effects.

Although it might be more prudent to save for a rainy day, Uncle Sam hopes Americans who have been putting off buying that new set of golf clubs, cashmere blazer or flat-screen TV will do their patriotic duty and spend, spend, spend.