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Readers stumped by tax rebate riddles

As readers sit down to the annual brain-teaser of filing their income tax returns, this year offers a new enigma. Will I get one of these tax rebates from the government?
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As readers sit down to the annual brain-teaser of filing their income tax returns, this year offers a new enigma. Will I get one of these tax rebates from the government? Last week's column on the subject touched off a flood of fresh questions.

Regarding the stimulus plan, how about those of us who "overpaid" and received a return from the IRS? We have two kids but did not actually owe the IRS anything, in fact, we overpaid and received money back. Will we benefit from this?
Zoe, Sacramento, Calif.

Yes, as long as qualify under the income guidelines (see ), you'll get a rebate.

Many readers are confusing rebates, refunds and returns. Your return is the set of forms you fill out and file with the IRS detailing your various sources of income, along with any deductions and tax credits. Your refund is any money the IRS gives you back every year if you had too much money withheld from your paycheck during 2007, or any other reason that reduced the amount of taxes that you owe below what you've already paid. Your rebate is a one-time cut in the amount of taxes you owe — the size of which depends on your income, martial status and the number of children you claim as dependents.

This is technically a rebate for your 2008 taxes, but the checks are going out this year based on your 2007 return. If you don’t qualify in 2007, and you do qualify in 2008, you’ll get a check next year.

Since the tax rebates are actually rebates against 2008 taxes and not 2007, will they decrease the size of the refund we will get next year? If we would normally get a $500 refund, but receive a $1200 rebate check, will we end up owing $700 to the IRS next year? Or, is this really free money?
Rich W.,Parma, Ohio

It’s free money. You won’t have to pay taxes on your 2008 return on any rebate you receive and you won’t have to give it back next year. If you’re due a $500 refund from paying too much withholding tax in 2007, you’ll get it all back — plus the $1200 check you'll get if you and your wife don’t make more than $150,000 in adjusted gross income. Any refund you get in 2009  will be based solely on how much you overpaid the government for income earned in 2008.

If a person passes away in Sept. of 2007 will they still get the extra check?
David T., Springhill, Fla. 

Technically, no. The IRS will not issue a check to someone who is deceased. The rebate will be paid to the estate of the person who died, to be distributed according to the terms of that person’s will.

I moved since filing 2007 taxes. Do I need to notify someone to receive my rebate check?
— Jason, Houston, Tex.

Yes, the IRS will mail the check to the address provided on your latest return. If you move after filing your 2007 return, you’ll need to provide a forwarding address. You can do this at the post office, or you can notify the IRS directly. Go to the IRS Web site and download Form 8822, fill it out and send it in.

In regards to the tax rebate checks; I claim one of my daughters, as part of my divorce decree, but she does not live with me. Will I get an extra $300 or will that go to my ex-wife?

Only one divorced parent gets to claim a child as a dependent for tax purposes. So if you claim your daughter, you get the check.

But the IRS says it will look at both 2007 and 2008 returns to determine eligibility, so you may both be able to get a check by having one divorced spouse claim a child in 2007 and the other spouse claim the child in 2008.

By having one spouse claim the child as a dependent this year and the other spouse doing so next year, each spouse should be entitled to the child rebate — but one will have to wait until next year to collect it. Remember, you can only claim one child rebate check per spouse: if you claim your daughter this year, you won’t get another rebate by claiming her next year.

What if we qualify for rebates in 2007 and in 2008, but qualify for a bigger rebate in 2008? We're expecting our second child in April 2008, which will qualify us for another $300 in 2008.
Katherine L.,Boston, Mass.

You should get a check next year for a child born in April, 2008. And if anything else changes in your financial situation in 2008 that improves your chances for getting a check — say you make too much in 2007 but fall within the eligibility caps in 2007 — you’ll get a rebate next year on your 2008 taxes. If you’re eligible in 2007 but not in 2008, you still get to keep the check.

It is quite clear that I will receive the $1,200 plus $600 for my children. I am also a disabled veteran. Do I get an additional amount for that?
Bobby B., Augusta Ga.

No. There is no category specifically for those with disabilities or who have served in the military. In the early rounds of the Great Rebate Debate of 2008 there was some question as to whether the original guidelines might have excluded some disabled veterans, so the guidelines were changed to prevent that from happening.

I have a question regarding the stimulus package signed by President Bush. I understand that $300 per child will be sent to families in addition to the $1200 (if I am filing jointly and less than $150,000). I have a 3-1/2 year old and a 9 month old. The 9 month old was born in April, 2007. I obviously intend on claiming her as a dependant for 2007. When is the cut-off age for children in order to receive the $300?
— Paul W. Hamilton, Ohio

There is no lower cut-off age for children. (Update: But there is an upper limit of 17.) Child rebates are paid for any child who qualifies for the child tax credit on your 2007 or 2008 return (you only collect one $300 rebate per child) based on your overall income eligibility.

To qualify for the child tax credit, you need to meet five conditions. According to the IRS Web site, for tax purposes a "qualifying child:"

  • Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild, niece, or nephew),
  • Was under age 17 at the end of 2007,
  • Did not provide over half of his or her own support for 2007,
  • Lived with you for more than half of 2007, and
  • Was a U.S. citizen, a U.S. national, or a U.S. resident alien.

For more on which kids qualify, check this page on the IRS Web site.

I made over $3,000, but my parents claim me on their taxes — do I get my own rebate or do they get it instead of me?
Rachel,Hershey, Penn.

Your parents get they check (if you qualify for the child tax credit - see previous question). Children claimed as dependents on their parents' return will not be eligible for their own rebate as an individual. This will likely be the subject of some spirited conversation around the family dinner table.

If that doesn't seem fair, consider it a completely inadequate acknowledgement of all of the wonderful things — both financial and otherwise — that your parents have done for you over the years.