I doubt if Congress knew what kind of a mess they were creating when they included the 2008 provision for the Recovery Rebate Credit (RRC) in the tax law, but this provision has really tossed a spanner into the works. If you’ve started working on your tax return for 2008, you’ve probably already dealt with this. If you haven’t started on your return yet, be prepared, because it can be confusing.
Here’s the deal: If you did not receive the maximum amount of your Economic Stimulus check last summer, and the circumstances have changed since that point in time, you have another opportunity to recieve a similar amount or complementary amount with your 2008 income tax return. The key point to remember is this: The Stimulus Check was not taxable income. Repeating – THE STIMULUS CHECK WAS NOT TAXABLE INCOME. Having said that, it is still necessary to report the amount of your stimulus check with your tax return, primarily to determine if you are eligible for the RRC.
If you use tax preparation software (you know the packages) it will guide you through the process – but here’s where the problem comes in: One of the most popular packages shows you your potential refund throughout the process, and this can be very misleading. Your potential refund will reflect the Recovery Rebate Credit if you would otherwise be eligible for the credit (if you had not received a Stimulus Check). However, as soon as you enter the amount of the Stimulus Check you received in 2008, your potential refund automatically reduces by the same amount.
In my opinion, the software package is at fault, because the RRC is not a part of the refund until the taxpayer and return are complete, and for whatever reason, call it the video game component of the tax prep software or what-have-you, the tax prep software thinks it’s necessary to give you the “in-game score” and cause a lot of confusion.
So, the moral of the story is – remember that the Stimulus check is not taxable, but you have to report it, and don’t believe the running tally on your tax prep software until all of your information is entered. Here’s another article about the confusion in case you’d like to read more.
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I can learn from you, you can learn from me - please leave your comments and links!Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 25 years of experience in the industry. Read more from this author
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