Filing Season Preview
Dealing with the stimulus payment
By Kaye A. Thomas
Posted July 23, 2008
Draft worksheet has 29 lines.
Every tax filing season has some special problem that adds to the general confusion, and we already know what it will be for next year: dealing with the stimulus payment. It's just enough out of the ordinary to raise plenty of questions, even among people who don't have any real issues. People who actually have issues will need to work through a new worksheet to be included in the Form 1040 instructions. The political compromises that went into this law made it more complicated than it might ideally be, and as a result the worksheet (in its current draft, at least, see link under "Related" below) takes up a page and a half of the instructions and has 29 lines.
What's behind the worksheet
The stimulus law required the IRS to send payments based on your 2007 income tax, but the check is actually an advance payment of a rebate against your 2008 income tax. Because of this, the actual amount you receive as a stimulus payment won't necessarily be the correct amount to which you're entitled. Your income, filing status or number of dependents might change between 2007 and 2008, resulting in a different calculation.
Some people will have received a stimulus payment larger than the number that would be justified based on their 2008 income. This is not a problem: those people are allowed to keep the money. They don't have to pay it back or report it as income or do anything else. Consider it a gift from Uncle Sam.
Others, though, will have received a stimulus payment smaller than the rebate to which they're entitled, because the payment calculated by the IRS based on their 2007 return doesn't take into account a change in their income or other circumstances in 2008. These people will be entitled to an additional credit to make up the difference when they file their 2008 income tax return. That's where the 29-line worksheet comes into play: people will use it to determine how large the stimulus payment should have been, so they can claim the added credit if the actual payment was smaller.
A lot of people have a hard time grasping the concept of a prepaid rebate against 2008 income tax that's initially calculated based on 2007 income . . . but it only adds to the confusion when the calculation is so complicated. That's what we'll be dealing with this tax season, though. Let's hope the payments were stimulating enough to be worth it.
Related
- The Market Answers Our Prayers (previous feature)
- Stimulus Payments in IRAs (what to do if IRS direct deposited to this account)
- Draft of stimulus credit worksheet (PDF)
