Confusion over how to account for last year’s stimulus payment on 2008 tax returns could affect just how much you get from a new Recovery Rebate Credit.
The Recovery Rebate Credit is a one-time benefit for people who didn’t receive the full economic stimulus payment last year and whose circumstances may have changed, making them eligible now for some or all of the unpaid portion.
The Internal Revenue Service says early samplings of 2008 tax returns show a 16 percent error rate involving how to account for the stimulus payments that were issued to nearly 119 million Americans last year.
The payments affect your eligibility for the new Recovery Rebate Credit.
IRS spokesperson Bill Brunson said qualifying for the rebate credit depends largely on a change in dependents in a household.
“Most folks received what they should have last year. Some individuals have had a change since filing last year, meaning there is some money left to be credited to them,” he said.
Having a baby, earning less or more in 2008 than in 2007 or a child that is not longer a dependent are some of the changes that make a family or individual eligible for the new credit.
Brunson said that most electronic filing software will calculate the amount of the Recovery Rebate Credit.
“Many people are putting the economic stimulus they received last year and using that amount and putting it on the Recovery Rebate Credit line on the form or into the software,” he said. “That’s where the problem is.”
Brunson said the amount received last year should be subtracted from what amount an individual or family is eligible for this year.
“Most people will zero out,” Brunson said.
Mary Hernandez, an IRS-certified tax preparer in Clovis, said she takes care of calculating the amount of the Recovery Rebate Credit for her clients.
“We haven’t had people asking us about it, we ask them. We find out the correct amount of the Recovery Rebate Credit to eliminate the issue,” she said.
Hernandez said she uses a tool on the IRS Web site that calculates the amount by a person’s Social Security number, tax exemptions and type of return.
“That eliminates a whole lot of hassle and headache for my customers and for me,” she said. “But believe me, the IRS is not going to give you more than you’re entitled to.”
Like last year’s stimulus payment, the Recovery Rebate Credit is a maximum of $600 for individuals and $1,200 for married couples filing jointly. Another $300 is added for each qualifying child under age 17.
For information of the Recovery Rebate Credit call 1-866-234-2942 or visit www.irs.gov
1. Myth: The economic stimulus payment you got last year must be paid back or is taxable or lowers your refund.
Fact: The stimulus payment is not taxable federally, does not have to be paid back and does not lower your tax refund.
2. Myth: You must report the stimulus payment you received last year on your 2008 tax return.
Fact: You do not report the stimulus payment directly on your tax return. If you are using tax software, enter the stimulus payment amount when prompted and the software will complete the calculation and enter the correct credit on your return. If you are filing a paper return, enter the stimulus payment amount on the Recovery Rebate Credit worksheet in the instruction booklet then complete the worksheet and enter the result on your return.
3. Myth: When using tax software, the amount of the refund displayed on the screen decreases as soon as you enter your stimulus payment, so that proves that it's either taxable or it reduces your refund.
Fact: Some tax software adds the Recovery Rebate Credit to your refund up front then subtracts your stimulus payment from the credit as soon as you enter the amount of payment you got. With some exceptions, people are only entitled to either the 2008 stimulus payment OR the Recovery Rebate Credit on their 2008 tax return, not both.
4. Myth: If you enter the amount of your stimulus payment directly on your tax return, your refund will be delayed for weeks.
Fact: Entering the amount of your stimulus payment directly on your tax return is an error and may delay your refund, usually by no more than one week.
5. Myth: If you can't find the amount of your stimulus payment or don't remember it, you can't get the Recovery Rebate Credit.
Fact: The IRS provides an online tool at www.irs.gov that allows you to access the amount of your stimulus payment by entering your Social Security Number and your 2007 filing status and number of exemptions claimed. If you don't have Web access, call IRS toll-free at 1-866-234-2942 and provide the same information. However, if for some reason you are unable to find out your stimulus payment amount, as a last resort make certain that the return you file claims a zero amount for the Recovery Rebate Credit on the actual return. Typically, this would best be accomplished by entering the maximum stimulus payment amount on the worksheet or when prompted by the tax software. In this situation, in which your return claims a zero amount of Recovery Rebate Credit, the IRS will automatically send you the amount of credit to which you are entitled. If you are filing a paper return, entering “RRC” on the Recovery Rebate Credit line will prompt the IRS to figure the credit for you.
6. Myth: If you got a stimulus payment last year, you are not eligible for the Recovery Rebate Credit.
Fact: This is true for many but not all. For example, taxpayers who had a child born in 2008 or who ceased being a dependent may qualify for the credit. Seniors or retirees who did not file for the stimulus payment last year may also qualify for the credit.
7. Myth: The Recovery Rebate Credit will be sent as a separate check.
Fact: The credit will be added to your 2008 tax refund. It will not be a separate payment