Is the upcoming tax rebate free money or an advance on next years tax refund?

meghananne23: Is the upcoming tax rebate free money or an advance on next years tax refund?
I’m confused…….. I’ve heard that the tax rebate will be like additional income that you will be taxed on, but then I’ve also heard its just basically an advance on next years tax refund?

Anyone know what it is?

THANKS!

Answers and Views:

Answer by v b
Your refund for 2008 was “increased.” The difference is being sent to you early. The refund you would in2008 have gotten if the law hadn’t been passed is still the same.

The rebate check will not be taxed in any way.

Answer by Judy
No, it isn’t additional income that you’ll be taxed on, and not an advance on next year’s refund either. Next year there will be a tax cut for income in the 10% bracket – it won’t be taxed. The rebate is an advance on that tax cut – if you get the rebate, you won’t get that much of the benefit the tax cut would give you, but your refund will be the same as if there hadn’t been a rebate and hadn’t been a tax cut either. If your rebate is more than the tax cut gives you, you get to keep the extra.

Answer by Teresa H
The rebate is a special stimulus to stimulate the economy. It is not taxable income and it is not an advance on next years tax refund. It is an incentive, If you don’t qualify for the full amount now you may be eligible to receive some when filing your 2008 return. Be sure to keep the letter from IRS stating how much you are to receive for the 2008 tax year.

Answer by Barbergirl
An excerpt from the IRS FAQs on economic stimulus rebates:

Q. 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. In the event you do not qualify for the full amount this year but you do next year, you will need to have the letter as a record of the amount you previously received.

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.

Q. I don’t qualify for a stimulus payment based on my 2007 return. But my tax situation will be different in 2008. Will I qualify for any special benefit?

A. Possibly. The 2008 tax instructions will include a worksheet to help those who did not qualify for a payment or those who received a reduced amount determine if they can obtain a benefit when they file their 2008 tax returns next year.

Q. I’m eligible for a payment but I still owe federal income tax from a prior year. Will my payment be reduced?

A. Yes. For this purpose, the stimulus payment is treated like any other tax refund. This means that part or all of your payment can be used to pay past-due federal or state income taxes or non-tax federal debt such as student loans and child support. If this occurs, you will receive a letter explaining how the stimulus payment was applied.

Q. Why is IRS sending out two notices on the stimulus payments?

A. The first notice will be general in nature, informing the recipient the IRS is preparing to disburse payments beginning in May. The second notice will be more specific, informing the recipient how much to expect in the payment and when it should arrive. [New 2/27/08]