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March, 2009 Tax Tip

Setting You Straight On the Recovery Rebate Credit


It appears from early filed 2008 tax returns that the most misunderstood tax break is the recovery rebate credit.  This month’s Tax Tip explains it to you and lets you know if you qualify to receive it.


The recovery rebate credit is a one-time tax credit that’s intended to make up for the unpaid portion of your 2008 stimulus payment provided you received less than you were due.


If you received an economic stimulus payment in 2008 (the maximum amounts were $600 per taxpayer; $1,200 per couple), it was an “advance” on your 2008 taxes, but it was calculated based on the facts of your 2007 return.  The hoped for objective of the rebate was to stimulate the economy before 2008 returns were filed.


If you didn’t get the rebate last year or if you didn’t get the full amount, you might qualify for a rebate credit this year if one or more of these situations exist:


You were claimed as a dependent on another’s return in 2007 but not (or will not be) in 2008.

You had a significant decrease in 2008 income.

You had a child in 2008 which could not qualify you for an additional $300 credit in 2007.

You didn’t have a valid Social Security number in 2007 but got one in 2008.

You didn’t file a 2007 tax return but earned money in 2008.


If you are a “do it yourselfer” the credit is claimed on Form 1040, 1040A, or 1040EZ.  The instructions for all three forms contain a worksheet to help you calculate the total credit, if any, you are due for 2008.  Once you have this number, subtract from it the rebate, if any, that you received in 2008.  If the balance is a positive number you can claim a credit for that amount.  The instructions for your appropriate form will tell you where to enter the amount you are due.  IMPORTANT:  If the number you calculate is zero or negative, you DO NOT have to pay it back.


While there is no guarantee, if you are using tax preparation software the calculation should be automatically done for you provided you input the numbers correctly.  It is critical that you know the exact amount of the stimulus payment you received in 2008 in order to properly do the recovery rebate calculation, whether or not your 2008 return is professionally prepared.




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