Economic Stimulus Package: Tax Rebates & Business Incentives
Tax Alert, February 2008
President Bush signed the Economic Stimulus Act of 2008 into law on February 13, 2008. This legislation contains a one-time tax credit rebate provision and business tax incentives designed to encourage business investment in new equipment.
Tax Credit Rebate Checks
Most taxpayers will receive rebate checks equal to the amount of the tax liability shown on their returns, up to a maximum amount of $600 for individuals ($1,200 married). A reduced payment of $300 ($600 married) may be available for taxpayers who are ineligible for the full credit.[1] A taxpayer entitled to a rebate will also receive an additional $300 amount for each qualifying child under the age of 17. In addition, no rebates will be issued to individuals listed as dependents on someone else’s tax return. The total rebate amount is phased out at a rate of five percent of AGI above $75,000 for individuals ($150,000 married). For example, $250 of an individual's $600 rebate will be phased out if the individual's AGI equals $80,000.[2]
The IRS will issue rebate checks based on information reported for the 2007 tax year. As a result, individuals must file 2007 tax returns in order to receive checks, even if they are not otherwise required to do so because of low income. The rebate is actually structured as an advance refund against a reduction in taxes for the 2008 tax year. Consequently, taxpayers, who do not receive their full rebate amounts, will be allowed to adjust their rebates upward to the extent that their 2008 tax returns support a higher amount. Taxpayers who receive rebates that are too large based on their 2007 information are not required to repay excess amounts to the IRS.
The IRS expects to start issuing rebate payments in May to taxpayers who file their returns by April 15. No rebate checks will be issued after 2008, although the amounts may be refunded on 2008 tax returns.
Increased Section 179 Expense Deductions
Section 179 allows businesses to expense certain qualified assets in the year of acquisition, rather than depreciating them over time. This legislation raises the expensing limit from $128,000 to $250,000 for taxable years beginning in 2008. This deduction phases out dollar-for-dollar as fixed asset purchases exceed $800,000.
Bonus Depreciation
This legislation allows taxpayers to expense 50 percent of the cost of qualifying new property placed in service during the period beginning 1/1/08 and ending 12/31/08, regardless of the taxpayer’s taxable year. Qualifying property includes most assets with a tax depreciation life of less than 20 years, but the property's original use must have started with the taxpayer after 12/31/07.
[1] A taxpayer, who has little or no tax liability, may qualify for a payment of $300 ($600 married) if his or her tax return reflects either 1) $3,000 or more of earned income, Social Security benefits, and veteran's benefits or 2) a net income tax liability of at least $1 and gross income greater than $8,950 ($17,900 married).
[2] $80,000 less $75,000 = $5,000 x 5<% = $250.
Disclaimer: The information provided in this memorandum is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC is not rendering legal, accounting, or other professional advice or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use.