IRS debunks myths about reporting stimulus payments
The Internal Revenue Service announced that an early sampling of tax returns shows a large number of errors involving how to account for last year's Economic Stimulus Payments on 2008 tax returns.
Those payments affect taxpayers' eligibility for the Recovery Rebate Credit, a special one-time benefit that nearly 119 million Americans received last year in the form of the Economic Stimulus Payment.
"Taxpayers should NOT report the stimulus payment directly on their tax return," said IRS spokesman Michael Devine. "They should only use that figure to calculate the Recovery Rebate Credit and if they are not sure what number to use, let the IRS calculate the credit."
Most taxpayers who received a stimulus payment last year are not eligible for the Recovery Rebate Credit, but there are some exceptions. Those who earned more or less in 2008 than in 2007, added a qualifying child, or ceased being a dependent in 2008, may qualify for some or all of the new credit. Also, seniors and retirees who did not file for a stimulus payment last year may qualify.
To determine eligibility for the new credit, taxpayers can either complete the recovery rebate credit worksheet when preparing their tax return or let the IRS calculate any credit based on its records.
The following are some myths and misunderstandings that may be causing increased filing errors.
Myth: The economic stimulus payment you got last year must be paid back, is taxable or lowers your refund.
Fact: The stimulus payment does not have to be paid back, is not taxable federally and does not lower your tax refund.
Myth: You must report the stimulus payment you received last year on your 2008 tax return.
Fact: You DO NOT report the stimulus payment directly on your tax return. If you are using tax software, enter the stimulus payment amount when prompted and the software will complete the calculation and enter the correct credit on your return. If you are filing a paper return, enter the stimulus payment amount on the Recovery Rebate Credit worksheet in the instruction booklet then complete the worksheet and enter the result on your return. Or, enter "RRC" on the Recovery Rebate Credit line and the IRS to figure the credit for you.
Myth: When using tax software, the amount of the refund displayed on the screen decreases as soon as you enter your stimulus payment, so that proves that it's either taxable or it reduces your refund.
Fact: Some tax software adds the Recovery Rebate Credit to your refund up front then subtracts your stimulus payment from the credit as soon as you enter the amount of payment you got. With some exceptions, people are only entitled to either the economic stimulus payment OR the Recovery Rebate Credit on their 2008 tax return, not both.
Myth: If you enter the amount of your stimulus payment directly on your tax return, your refund will be delayed for weeks.
Fact: Entering the amount of your stimulus payment directly on your tax return is an error and may delay your refund, usually by no more than one week.
Myth: If you can't find the amount of your stimulus payment or don't remember it, you can't get the Recovery Rebate Credit.
Fact: The IRS provides an online tool (How Much Was My Stimulus Payment?) at www.irs.gov that allows you to access the amount of your stimulus payment by entering your Social Security Number, your 2007 filing status and number of exemptions claimed. If you don't have Web access, call IRS toll-free at (866) 234-2942 and provide the same information. However, if for some reason you are unable to find out your stimulus payment amount, as a last resort make certain that the return you file claims a zero amount for the Recovery Rebate Credit on the actual return. Typically, this would best be accomplished by entering the maximum stimulus payment amount on the worksheet or when prompted by the tax software. In this situation, in which your return claims a zero amount of Recovery Rebate Credit, the IRS will automatically send you the amount of credit to which you are entitled. If you are filing a paper return, entering "RRC" on the Recovery Rebate Credit line will prompt the IRS to figure the credit for you.
Myth: If you got a stimulus payment last year, you are not eligible for the Recovery Rebate Credit.
Fact: This is true for many but not all. For example, taxpayers who added a qualifying child in 2008 or who ceased being a dependent may qualify for the credit. Seniors or retirees who did not file for the stimulus payment last year or if your financial situation changed dramatically from 2007 to 2008, you may also qualify for the credit.
Myth: The Recovery Rebate Credit will be sent as a separate check.