Recovery Rebate Credit for 2008

Early returns show mistakes


By Kaye A. Thomas
Posted February 4, 2009

Here's how to get it right.

Your 2008 income tax return has a place to claim something called the recovery rebate credit. According to the IRS, an early sampling of returns show about 15 percent have errors involving this item, and that would translate into millions of returns that need corrections. Here are the key things you need to know about this credit.

Background

In an effort to stimulate the economy, the government sent out 119 million stimulus payments last year. These payments represented a reduction in your 2008 tax, paid in advance. The amount you're supposed to receive depends on your income and filing status for 2008, which couldn't be known at the time the IRS mailed the checks. That means they had to determine these payments based on information appearing on your 2007 income tax return. There are three possibilities:

You have more money coming: Based on your 2008 tax situation you were entitled to receive a stimulus payment, but you didn't get one, or the one you received was too small. In this case you get to claim the special recovery rebate credit on your 2008 income tax return to make up for not receiving this money earlier.

You received the right amount: The amount you received based on your 2007 tax return turns out to be correct. That's going to be true for the vast majority of taxpayers. You already received the correct amount, so you don't get to claim any additional credit.

IRS paid you too much: Your stimulus payment was more than the amount that's justified by your 2008 tax situation. Lucky you: you get to keep the extra money — but of course you don't get to claim this credit.

The most important thing to understand

To avoid mistakes, the most important thing you have to understand is that the number you put on your tax return for the recovery rebate credit is not the amount you received. Instead, it's the amount you didn't receive, but should have. The only people who claim this credit are the ones in the first category above, who didn't receive a stimulus check, or received less than the amount indicated based on their 2008 tax situation. If you received the correct amount, or more than the correct amount, your recovery rebate credit is zero.

Many taxpayers think they're supposed to enter the amount of the rebate check on this line. That's wrong!

How much did you receive?

The one little fact you need to know, whether you're preparing your return by hand or using software, is the amount of your stimulus payment. For some people it may not be exactly the same as the amount of the check you received, as deductions could have occurred in some situations. To make sure you have the right information, check with the IRS. The fastest way is online. Use this link to go to a page where you enter your social security number, filing status and number of exemptions for your 2007 return. (Remember to include an exemption for yourself and, if you filed jointly in 2007, for your spouse.) We tested this and it works great. For a married couple, it tells the total amount received, and also the amount per spouse so you'll know what number to use if you aren't filing jointly in 2008, or you're filing jointly with a different person.

If you prefer, you can get these numbers by calling the IRS recovery rebate credit hotline at 1-866-234-2942. You'll get the same information, but it will take a little longer as you have to listen to explanations and enter information using the keys on your phone.

Remember, this is not the number you enter on your tax return. The number that goes on your return is the additional amount, if any, you should receive.

How much should you receive?

If you're using tax software, including an online return preparation service, the software will ask for the amount of the stimulus rebate you received and automatically calculate the amount of credit, if any. Otherwise you can calculate the amount by hand using a worksheet in the instructions for your income tax return, or use an online tool provided by the IRS. Either way it will be a pain in the neck because there are so many parts to the calculation. In fact, the worksheet in the instructions doesn't fit on a single page.

Fortunately there's a better way. The IRS will calculate this credit for you. Here's what you do (copied from the IRS instructions):

Credit figured by the IRS. If you want us to figure the credit for you, enter “RRC” next to [the line for this credit]. If you (or your spouse, if filing jointly) received any nontaxable veterans’ disability or death benefits, also enter “VA” next to [the line for this credit]. If you (or your spouse, if filing jointly) had nontaxable combat pay, did not file Form 8812, and did not enter an amount on line 40b, also enter “NCP” next to [the line for this credit].

The line where you claim the credit varies depending on the version of Form 1040 you use. Remember, you won't have to do this if you use software to prepare your return because the software will automatically determine whether you're entitled to the credit.