Economic Stimulus Plan: How Might It Work?

By George L. Yaksick, Washington Staff Writer

Lawmakers tend to paint with broad strokes and the economic stimulus package brokered between President George W. Bush's administration and the House of Representatives is a good example. At press time, only summaries of the tax rebates and business incentives have been issued by the White House, administration officials and some members of Congress. Legislative language is expected soon. In the meantime, questions are being asked about who will qualify for the rebates, when and how will the IRS will issue the checks, and many other questions.

During a January 25, 2008, online forum called "Ask the White House," Treasury Secretary Henry M. Paulson, Jr. said that individuals with earned income of $3,000 or more will be eligible for a $300 rebate ($600 for married couples filing jointly). "Based on the amount of federal income taxes paid, the rebate rises to as high as $600 for an individual and $1,200 for a married couple," Paulson explained. Shortly before Paulson's online presentation, the Treasury Department issued a Fact Sheet with examples of who would receive a rebate.

Rebates would phase-out for single individuals with adjusted gross incomes (AGI) of $75,000 or more and for married couples filing jointly with AGI of $150,000 or more. Paulson had previously indicated that rebates would phase out at five percent for each additional $1,000 in earnings.

Besides rebates, the proposal includes a $300 child "bonus." The $300 bonus would be added to the taxpayer's rebate amount. At this time, it appears the bonus would be paid for each and every qualifying child with no cap on the number of children. However, bonuses would be subject to phase-outs similar to the phase-outs for rebates.

The proposal also includes two business tax incentives: temporary bonus depreciation and enhanced Code Sec. 179 expensing. Bonus depreciation would reach 50 percent. The Code Sec. 179 expensing amount would reach $250,000 with an overall investment limit of $800,000.

Processing Rebate Checks

Paulson said that the Treasury Department is working closely with the IRS to process rebates "as quickly as possible." A Treasury spokesperson told CCH that "checks can start going out 60 days after legislation is enacted."

If Congress passes a bill quickly, the IRS would be in the unenviable, and possibly unworkable, position of issuing rebates and 2007 tax refunds at the same time. The Joint Committee on Taxation has cautioned that the IRS lacks the resources to do both. "The IRS' systems are today fully engaged in processing 2007 returns," the Joint Committee explained. "As a result, it is not practical to contemplate distributing cash rebates until the peak filing season is completed, which in past years has been the very end of May." According to the Joint Committee, the federal government can only print nine million checks each week.

However, if Congress passes a bill in mid- or late February, the IRS will likely have issued the bulk of 2007 tax refunds before having to switch gears to process the rebates. "Individuals expecting refunds tend to file early," Thomas Ochsenschlager, vice president – taxation for the American Institute of Certified Public Accountants (AICPA) told CCH. Many people will be filing very soon after January 31. The earlier they file, the more time the IRS will have to process their refunds before issuing the rebates, he noted.

The Treasury spokesperson also indicated that the government will encourage taxpayers to have their rebates directly deposited into their bank accounts. CCH asked if taxpayers would have the option of splitting their rebates among one or more accounts. The spokesperson relayed that "details are still being worked out." Individuals already have the option to split their tax refunds.

2001 Rebates

Congress enacted a similar rebate program in 2001 as part of the Economic Growth and Tax Relief Act of 2001. President Bush signed EGTRRA into law on June 7, 2001 and the first rebate checks were issued in late July 2001. The IRS notified taxpayers in advance of how much their rebate would be (the rebates were advance payments of the new 10 percent tax bracket).

At that time, the IRS used a distribution schedule based on the last two digits of the taxpayer's Social Security number. For married couples filing jointly, the first Social Security number on the return determined the mailing date for the rebate. Distributions began in late July and continued into September, a period of roughly 10 weeks. Paulson has indicated that distributions this year would be spread out over 10 weeks.

For more help with the many tax changes that may affect you for the 2007 tax filing season and beyond, take a look at the Toolkit Tax Guide 2008. This easy-to-understand book helps taxpayers--including individuals and entrepreneurs--manage their taxes so they can better prepare their 2007 tax returns, as well as begin planning for 2008. It also includes free income tax preparation of a state and federal return and e-filing with CompleteTax^TM, CCH's easy-to-use online tax return service for individuals. Toolkit Tax Guide 2008 is available in major retail and online bookstores nationwide; via the Business Owner's Toolkit bookstore; or by calling 1-800-248-3248.

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Posted January 29, 2008.