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In response to recent economic uncertainties, the Economic Stimulus Act of 2008 provides individual taxpayers a one-time rebate (advance tax credit). The act also includes a temporary increase in limitations on expensing and depreciating certain business assets.
With economists and economic indicators forecasting a recession for 2008, and in the midst of the subprime lending crisis, the Economic Stimulus Act of 2008, P.L. 110-185 (ESA), was signed into law on February 13, 2008. The act is intended to help mitigate or forestall the recession. It provides two tax benefits: recovery rebates for individuals and incentives for business investment. Rebate checks are being sent to taxpayers in the hopes that people will spend the money and thus stimulate the economy. The business provisions include incentives for investment as well as some planning opportunities that should be taken advantage of before the end of the year.
Recovery Rebates for Individuals
The rebate-an advance tax credit for tax year 2008-is available to individuals other than nonresident aliens, dependents, and estates or trusts.1 Treasury started sending rebate checks to taxpayers in May 2008. Most taxpayers who qualify will receive between $300 and $600 (between $600 and $1,200 for married couples). The IRS will calculate the rebate based on the taxpayer's 2007 tax return. However, a reconciliation process with the actual 2008 return is required, which may result in an additional benefit in 2009.
Under Sec. 6428, the rebate is computed in two parts. The primary part is determined as a function of the taxpayer's net income tax liability and filing status.2 The secondary part is a function of the qualifying child credit.3 The child must be both a qualifying dependent child (under Sec. 152(c)) and less than 17 years old.
The taxpayer must meet a qualifying income or net tax liability threshold to be eligible for the rebate.4 The qualifying income must be at least $3,000 from the following sources: earned income including combat pay5 and taxable self-employment income;6 Social Security benefits for retirement, disability, or survivors' benefits;7 or amounts received from veterans' affairs for disability compensation, disability pension, or survivors' benefits (under USC Title 38, chapters 11, 13, or 15).8
Otherwise, net tax liability (including alternative minimum tax (AMT)) determines eligibility.9 That net tax liability must...