on Feb 13th, 2008America, don’t blow this rebate - The details on tax rebates
Congress wraps up the details: $300 for retirees, $600 for most individuals and $1,200 for most couples. But wait, there’s more: It’s not really free money.
By Liz Pulliam WestonSome Americans are getting awfully excited about the prospect of spending their own money.
The $168 billion economic stimulus package just passed by Congress will ship checks of up to $600 for individuals and $1,200 for couples starting in May. Most households will get these checks, although individuals with adjusted gross incomes of more than $75,000 and couples making more than $150,000 will see less or nothing at all.
Additionally, families will get $300 per child.
The biggest change since the original proposal: Those who paid no income taxes will get $300 as long as they earned at least $3,000, including veterans disability or Social Security benefits.
An estimated 130 million taxpayers will share the rebate money.
Here’s what you need to keep in mind while you’re waiting:
This isn’t free money — for most people
To produce this cash, Congress created a one-time tax credit to reduce taxable income for most taxpayers this year.Normally, you wouldn’t see that cash until the spring of 2009, when you filed your 2008 return. But Congress wants to speed that money to you now, so checks will start going out in May.
Remember, this is your money you’re getting back, and the rebate checks are basically an advance on your 2009 refund. When similar rebates were sent out in 2001, said tax expert Mark Luscombe, “a lot of people were upset to see their (next) refund reduced.”
The only people for whom this really is free money are low-income folks (those who earn at least the minimum $3,000 required to trigger the checks or who receive at least $3,000 in Social Security or veterans benefits) who won’t end up owing any taxes for 2008. If that’s your situation, or you somehow wind up with a check when you technically shouldn’t have — you earned income in 2007 but won’t in 2008, for example — you won’t have to pay back the money, said Luscombe, a principal analyst for tax research firm CCH.
By the way, even if you didn’t earn enough in 2007 to be required to file a tax return by April 15, Luscombe said, you probably should do so anyway to make sure you get on the Internal Revenue Service’s mailing list for the rebates.
The agency will get information from the Department of Veterans Affairs and Social Security to make sure those recipients get rebate checks, Luscombe said, “but regular taxpayers will need to file (for 2007) to get on the list.”
Spending money is not your patriotic duty
Yes, Congress and President Bush hope you’ll blow this money as quickly as possible to give the economy a shot in the arm.But politicians’ short-term attempts to influence the economy — and their ability to get re-elected — should not be your primary concern. Doing what’s right and responsible for your own finances will leave you better off and will probably be better for the economy in the long run.
Credit card rates are on the rise
I mention this because some people have been able to carry hefty credit card balances at remarkably low interest rates for years, but those days may be numbered. Many banks are cutting back on their low-rate transfer offers and jacking up rates even for good customers. If you have any credit card debt, the best use for your rebate check is likely to be paying it off.Continued: Blow some, save the rest
You’ll be in good company, according to recent polls. Forty-seven percent of those polled by Harris Interactive for CCH and 42% polled by Zogby International for TransUnion said they planned to use the checks to pay down debt. (The Harris poll didn’t provide a margin of error; the Zogby poll’s margin of error was plus or minus 1.8 percentage points.)
In both polls, 21% said they planned to spend the check. The rest said they’d save or gave some other answer.
Middle- and lower-income householders were more likely to say they were going to pay off debt. Debt payers included:
- 52% of those with household incomes of less than $35,000.
- 57% of those with incomes of $35,000 to less than $50,000.
- 50% of those with incomes of $50,000 to less than $75,000.
- 44% of those with incomes of more than $75,000.
Just remember that paying off a chunk of debt won’t get you ahead if you just wind up charging up the cards again. Check out the Smart Spending blog for ideas on how to trim your expenses and create a debt payoff plan so you can say goodbye to credit card debt forever.
Even though this windfall really isn’t a windfall, it’ll be hard to convince your brain of that fact once you have the check in hand. Consider satisfying the urge to splurge by spending a portion of the check (10% maybe, 20% max) and saving the rest.
If you don’t think it’s worth saving such a small amount, read “Why you need $500 in the bank” to learn how a cushion of just a few hundred bucks can have truly life-changing benefits.
If you’re going to buy, buy American
The whole point of these checks is ostensibly to keep the U.S. from sliding into a recession. Buying more stuff made in China won’t accomplish that end. In fact, it will make our already mind-blowing trade deficit even worse.So no plasma TV for you, bucko. If you care about the U.S. economy, buy an Oreck vacuum, a Speed Queen washer or dryer, a Whirlpool dishwasher or an Amana fridge. Or plan a nice little getaway somewhere local, so you’re spending on food, services and lodging that will keep the money in the U.S. rather than on foreign oil. (Try “A cheapskate’s guide to 29 cities.”)
Liz Pulliam Weston’s new book, “Easy Money: How to Simplify Your Finances and Get What You Want Out of Life,” is now available. Columns by Weston, the Web’s most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.
FROM MSN - ORIGINAL ARTICLE
http://articles.moneycentral.msn.com/Taxes/Advice/TheDetailsOnTaxRebates.aspx
