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On February 13, the Economic Stimulus Act of 2008 went into effect. This act provides tax rebates to Americans in order to stimulate the U.S. economy. The IRS will begin mailing these rebate checks starting in May and in order to be eligible, an American must have earned at least $3,000 of taxable income in 2007, file a tax return for 2007, and have a valid Social Security Number. Even Ohioans who are not usually required to file a tax return must file a 2007 tax return in order to be eligible to receive a stimulus rebate.
Up to 130 million Americans will be receiving rebate checks under the new economic stimulus package, and if you are eligible, then you may have wondered if you’ll have to give a portion of that check back to the IRS or to your state come tax time in 2009. The answer is that the rebate is not taxable federal income. Just as with any other tax rebate, these stimulus checks simply return a portion of the federal taxes that you have already paid, and you will not be taxed on it again.
Some states, however, will tax the rebate. These are states that allow a taxpayer to deduct the federal income tax that they pay from their state taxable income. Any reduction of federal taxes (such as a rebate) will also reduce the amount of federal tax that a taxpayer may deduct from their state taxes, and thus increase the taxpayer’s taxable state income.
The good news for Ohioans is that federal income tax rebates are not subject to Ohio income tax. Therefore, Ohioans will not have to pay either state or federal income tax on the economic stimulus rebates that many of us will be receiving soon. That means you can spend or, better yet, save your entire rebate.
If you are not from Ohio, check with your state’s Department of Taxation. If you do have to pay state taxes on the rebate, be sure to plan ahead and put a portion of the rebate in a high interest savings account or another safe investment. By April 2009, you will have enough to cover the tax on the rebate and a little left over for you. Related Items
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