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What's New? File for Your Tax Rebate, And... UPDATED: Don't Borrow on Your Tax Refund! 4/1/2008 - Q: Do I have to file a federal tax return to get my "economic stimulus" rebate? A: Yes. Even if you normally don't file a federal tax return, to get your payment under the "economic stimulus package," you have to file a return. An estimated 20 million seniors on Social Security are eligible to get $300 per individual or $600 per couple. Payments will be sent starting in May--but only to people who file a 2007 federal tax return. The IRS will do the rest. These payments will be direct deposited for taxpayers selecting that option when filing their 2007 tax returns. Direct deposit is the fastest way to get stimulus payments. To accommodate taxpayers who file tax returns later in the year, the IRS will continue sending payments until December 31, 2008 In most cases, the payment will equal the amount of tax liability on the tax return, with a maximum amount of $600 for individuals ($1,200 for taxpayers who file a joint return). But the law also allows for payments for select taxpayers who have no tax liability, such as retirees on Social Security, low-income workers or those on veterans' disability, pension or survivors' benefits. These taxpayers will be eligible to receive a payment of $300 ($600 on a joint return) if they had at least $3,000 of "qualifying income"---which includes Social Security benefits, certain Railroad Retirement benefits, certain veterans' benefits, and income from wages or self-employment. Dividends, interest and capital gains income is not counted as qualifying income. Supplemental Security Income (SSI) and IRA payments also dont count as qualifying income for the stimulus payment. The IRS says some Social Security recipients, certain Railroad Retirement and certain veterans beneficiaries, should report their 2007 benefits on Line 14a of Form 1040A or Line 20a of Form 1040. If you have already have filed your federal taxes, but did not report these benefits, you have to file an amended return using Form 1040X. Payments to higher income taxpayers will be reduced by 5% of the amount of adjusted gross income above $75,000 for individuals and $150,000 for those filing jointly. The IRS will be mailing 2 notices to taxpayers about these stimulus payments---but seniors are warned to watch for tax rebate scams, like telephone calls or e-mails claiming to be from the IRS and asking you for financial information. The IRS will not call or e-mail you about these payments. For information on free tax help, call 1-800-906-9887, or 1-888-227-7669. Q: I'm waiting for a refund on my federal taxes. Can I borrow money on that refund? A: Not a good idea. Now that you've filed your state and federal income tax---and you expect to get a refund check from the state or federal government---the Massachusetts Office of Consumer Affairs (MOCA) is warning taxpayers to be wary of tax refund loans, also known as refund anticipation loans (RALs). There were over 12 million RAL borrowers in 2003. RALs are secured by, and repaid from, a pending income tax refund. Because such loans are short term, the interest rates are usually very high. One study suggests that the interest on loans can range from 40% to over 700% annual percentage rate. The IRS says 79% of RAL recipients have adjusted incomes of $35,000 or less. But a refund anticipation loan is a risky proposition because it must be repaid---even if the taxpayers refund is denied, less than expected, or frozen. If the taxpayer cannot pay back the RAL, the lender may send the account to a debt collector. Heres how these loans work: A company will advertise that you can get money 'in as little as 1 business day' after IRS acceptance. Some plans even give you a 'pre-paid VISA card.' The loan is from a bank in the amount of your refund. When the loan is approved, fees are deducted from the loan amount and the balance of the loan is deposited to your bank account or mailed to you by paper check. Your refund later is used to pay back the loan. A customer signs up for one of these loans in anticipation of receiving a tax refund, which they'll use to pay the loan and fees. An individual who wants to get their money immediately--without having to wait for their refund to be direct deposited or mailed-is attracted to a RAL. But their tax refund could end up being less than they anticipated, and the lender charges a tax refund account fee & finance charge. Tax preparers and lenders make about $1.74 billion on RAL fees annually. One analyst suggested that RAL loans are just one more financial product for people with limited incomes who waste money because they don't have patience to wait two weeks to get their refund deposited electronically. MOCA says there are at least 4 better alternatives to RALs: 1. Open a bank account (if you havent already) and take advantage of direct deposit for both your tax refund and your pay check. 2. If you filed your tax return electronically (E-file), and directed that your refund be deposited directly into your bank account, you should receive your refund in 3 to 4 business days. 3. Don't take your refund to a check casher. They charge fees to cash RAL checks. Cash your check at a bank. 4. If you're working, reduce how much income tax you have taken out of your check (your withholding) so you won't have to wait for a refund next year. Whether you're getting a tax refund and/or an 'economic stimulus' refund this spring---don't take out a RAL. Wait for the government to send out your check or electronic deposit. Back to What's New?
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