Questions about the tax rebate

Lynn Brenner | Family Finance

4:09 PM EDT, April 4, 2008

You state that an individual taxpayer who "makes more than $187,000" is ineligible for the tax rebate. Is this earned income, adjusted gross income or some other classification of income? A.G., via e-mail

I get an income from the VA for my late husband. I don't get a W-2, and the income is tax-free. The only thing I get is a letter in January to let me know what my new deposit amount will be for the year. Do I file a tax return for the tax rebate, enclosing a copy of the letter from the VA? If not, please let me know what I need. B.G., via e-mail

People who wouldn't normally file a tax return must file one showing at least $3,000 of qualifying income to get a stimulus package rebate. Not to worry -- you won't owe any tax as a result.

Qualifying income includes earned income, Social Security benefits, certain railroad retirement benefits, certain veterans benefits and nontaxable combat pay. (For more information or help filling out the tax return, call the IRS hotline at 866-234-2942.)

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Anyone who wouldn't otherwise file a return should use Form 1040A, which is simpler than Form 1040. Write "Stimulus Payment" in big letters across the top of the form. On line 14a enter your total payments for Social Security (from 2007 Form 1099-SSA), railroad retirement benefits (from 2007 Form 1099-RRB) or the total you received in 2007 from the Department of Veterans Affairs in veterans disability compensation, pension or survivors benefits. (No need to enclose the letter from the VA.) If the total is less than $3,000, add any deductions for withheld taxes or Medicare premiums to the benefits you received. Mail the return to Department of the Treasury, IRS Service Center, Andover, Mass. 05501-0099.

The size of your rebate depends on how much income you have and on whether or not you have dependent children. The maximum payment is $600 per taxpayer ($1,200 for a married couple filing jointly), plus $300 for each qualifying dependent child.

That sounds simple enough -- but wait! There's a "phase-out" provision to ensure that people with more than a certain amount of income won't get a rebate: Your rebate check is reduced by 5 percent of your adjusted gross income over $75,000 if you're single, and over $150,000 if you're married filing jointly. (Your adjusted gross income is your income after you've deducted your IRA contribution but before you've subtracted any itemized deductions or personal exemptions.)

Clear as mud, right? Here's an example: If you're a single person with no qualifying kids, your maximum rebate is $600. But if your adjusted gross income is $80,000, you earn $5,000 more than the $75,000 limit. Your rebate is reduced by 5 percent of $5,000 -- i.e., $250. So you get a check for $350. The bottom line: Single people without kids get no rebate if their adjusted gross income exceeds $87,000, and married couples without kids get no rebate if their adjusted gross income is more than $174,000.

But if you have kids, says Bob D. Scharin, senior tax analyst at RIA, Thomson Tax & Accounting, you can have more income before reaching a full phaseout because your potential rebate is bigger. For example, a married couple with a qualifying child is eligible for a $1,500 maximum rebate. At a 5 percent phaseout rate, they're not eliminated for a rebate until their adjusted gross income exceeds $180,000. That's $30,000 over the $150,000 limit for married couples, and 5 percent of $30,000 is . . . that's right, $1,500.

If your eyes are glazing over, take heart. You don't have to calculate your rebate. The IRS does that for you. All you need to do is file a 2007 tax return.

Send questions to Family Finance, Business Desk, Newsday, 235 Pinelawn Rd, N.Y. 11747- 4250, or e-mail to Bfamfin@aol.com. Include your age, income, and a list of major assets. Sorry, letters and e-mails can't be answered personally. Questions are addressed only in the column.