I’ve been seeing a lot of people complaining that when they do their taxes they are required to pay back their 2008 economic stimulus payment.
According to the IRS, this confusion stems from the Recovery Rebate Credit. As I’ve reported previously, the Recovery Rebate Credit is a credit for taxpayers who didn’t previously qualify for the Economic Stimulus Payment or didn’t get the full amount.
What’s happening is people are claiming the Recovery Rebate Credit when they shouldn’t be or are putting their Economic Stimulus Payment amount in the Recovery Rebate section.
From the IRS:
Some individuals who did not get the economic stimulus payment, and a smaller number of those who did, may be eligible for the recovery rebate credit. However, most taxpayers who received the economic stimulus payment last year will not qualify for the recovery rebate credit on their 2008 federal income tax return.
An early sampling of tax returns shows about 15 percent have errors involving the recovery rebate credit. Some tax returns erroneously claim the credit, do not claim the proper amount of recovery rebate credit or mistakenly enter the amount of the stimulus payment they received on the recovery rebate credit line.
To avoid delays in tax refunds, it is critical that taxpayers know the correct amount of the stimulus payment they received last year, if any, to help determine whether they qualify for the recovery rebate credit now.
The amount of the stimulus payment will not be entered directly on the tax return. For people using a paper tax return, the stimulus payment amount will be required when completing a related worksheet. For people using tax software, the stimulus payment amount will be needed as part of the return preparation process.
Also:
With the amount of last year’s economic stimulus payment in hand, the taxpayer can then enter the figure on the recovery rebate credit worksheet or in the appropriate location when tax preparation software requests it.
If the taxpayer or preparer is using tax software, the amount of the recovery rebate credit will automatically be calculated and reported properly. If the taxpayer is using the paper method, the recovery rebate credit, as determined through the worksheet, should be reported on Line 70 of Form 1040, Line 42 of Form 1040A or Line 9 of Form 1040EZ.
For most taxpayers, the correct entry for the recovery rebate credit will either be blank or zero.
If there is any question at all as to the amount that should be reported for the recovery rebate credit, the taxpayer or preparer should enter a zero on the appropriate line above, and the IRS will determine whether a recovery rebate credit is due, and, if so, how much.
I’ve highlighted some key points here:
- Most who received the Economic Stimulus Payment will not be eligible for the Recovery Rebate Credit. Did you get an Economic Stimulus payment? If you got the full amount then don’t even worry about the Recovery Rebate.
- About 15 percent of returns so far have errors involving the Recovery Rebate Credit. Check what you are entering. Are you really eligible for the Recovery Rebate Credit?
- The only place on a paper return you should be entering your economic stimulus payment is on the worksheet not on the return itself.
- Most people will enter zero or leave the Recovery Rebate Credit blank.
- If you are unsure then leave it blank and the IRS will figure it out for you.
From the IRS regarding the Economic Stimulus Payment:
Q. Do I have to claim my stimulus payment as income on my 2008 income tax return?
A. No, the stimulus payment is not reportable as income on your 2008 income tax return.
Q. My stimulus payment was more than what the worksheet calculates my recovery rebate credit to be. Does this mean I will have to pay the difference?
A. No, you do not need to repay the difference, and the difference will not affect your return. However, your recovery rebate credit will be zero.
Q. Will the payment I received 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 tax return. The combined amount you received in the form of an economic stimulus payment plus any additional amount you receive, if any, in the form of a recovery rebate credit is independent of the normal tax you would have paid.
If you got an Economic Stimulus Payment in 2008 then it’s yours and you do not have to claim it or pay it back!
Make sure you understand that the Recovery Rebate Credit is not the same as the Economic Stimulus Payment. If you entered your stimulus payment on your return and it looks like you are paying it back then most likely you did something wrong somewhere along the line.
I hope this clears up some of the confusion!
Disclaimer: I am not a tax professional and any question you have regarding taxes should be discussed with a qualified professional.
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From what I can tell, the only people who have to worry about the Rebate are people who’ve had a change in status. (And even then, it’s a positive change.)
For example, last year I didn’t work, so I received $300. This year, however, I did earn. So when H&R Block’s Tax Act figured the rebate, I was due another $163. (Note to all: Don’t forget to check and see if you qualify for free e-filing!)
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@ Abigail – Exactly! Most people will not be eligible for the Recovery Rebate as they probably already got the Economic Stimulus. They may still be eligible for some extra but you have to be careful and make sure you qualify before you play with the numbers.
Even though I only received a $300 stimulus payment due to my child turning 17 before th3 end of 2007, making her a non-qualifying child even though she is a qualifying dependant, the IRS is claiming that my Recovery Rebate Credit is based on my receiving $600. This has now increased my taxes due by $300!! Is there any way I can remedy this?
@ Kymberli – Are you using tax software? Make sure you are entering everything correctly. Some software asks about what you have received as stimulus and it can be confused with the recovery rebate.
we received a stimulas check for 520 dollars that we didn’t ask for now the irs is making us pay ti back whey did they give it in the first place and now want ti back makes no sense
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