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Effect of tax rebates on you

January 26, 2008|Kathy M. Kristof | Times Staff Writer

An economic stimulus plan that has the support of Democratic and Republican leaders in the House as well as President Bush would give a financial boost to most Americans.

How might it affect you? The details are subject to change, but based on the terms of this week's proposal, here are answers to basic questions:

What would the plan do?

There are three main components:

About 117 million households -- 87% of families -- would get tax rebate checks.

Limits would be raised, at least temporarily, on the size of mortgages eligible for backing from Washington. That could make lower-cost mortgages more widely available.

Businesses would get big write-offs for investments made in 2008.

How much are the tax rebates?

The amounts would vary based on how much tax you paid in 2007 and whether you have children.

Here's how it breaks out:

Most people would get a rebate of $600 per individual or $1,200 per married couple filing jointly.

But if the tax you paid last year was between $300 and $600 per person or between $600 and $1,200 per couple, you would get a rebate of the tax you paid.

If you worked last year but paid little or no federal income tax, you would get a flat rebate of $300 per individual or $600 per married couple.

In addition to the above amounts, parents would get $300 per "qualifying" child.

What is a "qualifying" child?

The definition is long. The short version is a child under the age of 17 whom you support and who lives with you more than half the year.

We're a married couple with four young children. What would we get?

If you earn $150,000 or less, you probably would get $2,400. That's $1,200 for you and your spouse, plus $300 for each of your dependent children younger than 17. But if you paid less than $1,200 in tax in 2007, your rebate could be reduced.

Who wouldn't get rebates?

About 17 million higher-income households. The rebates would be phased out for singles earning more than $75,000 of what your tax form calls adjusted gross income, and couples with more than $150,000 of such income.

Does that mean I wouldn't get a rebate if I'm single and my adjusted gross income was $80,000?

No. It means you'd get a smaller rebate. The rebate would be reduced by 5% of the amount your income exceeded the threshold. In this case, your income was $5,000 over the threshold, so you would multiply 5% by $5,000 to get $250 and subtract that from your normal refund amount of $600. That would leave you with $350.

Is this a rebate of 2007 taxes?

Technically, it would be an early refund of your 2008 taxes. But the plan also would lower 2008 tax rates, so it wouldn't typically change how much you would get in your regular 2008 refund next year.

What happens if my income changes substantially from 2007 to 2008?

If you get a rebate based on your 2007 taxes that ends up being more than you would have gotten based on your 2008 numbers, you would get to keep it. If it turns out your rebate was less than what you are due based on your 2008 taxes, you can claim the difference when you file your 2008 taxes.

If this does pass, when would I get a rebate check?

The Treasury Department has said it could start sending rebate checks within 60 days of the bill's passage. However, tax season may complicate the answer, depending on when the package is passed. The IRS would be handling the refunds, and the agency must handle 2007 tax returns first. The last time a similar rebate program was launched, in 2001, rebates were sent out over a 10-week period in the summer.

Taxpayers received their rebate checks based on the last two digits of their Social Security numbers. Those with final digits ranging from 00 to 09 got checks in the first week; those with final digits from 10 to 19 got them in the second week, and so on.

What would happen with mortgages?

The plan would raise the limit on the size of "conforming" mortgages from $417,000 to at least $625,500. Such a provision, however, is opposed by some Republicans, so its adoption isn't certain.

What are conforming mortgages and why are they important?

Conforming mortgages are those that meet the federal standards followed by two government-sponsored companies -- Fannie Mae and Freddie Mac -- that buy huge amounts of home loans. Because lenders know they can easily sell conforming loans, these mortgages are readily available and relatively cheap. Because the median home price in California is $597,640, many residents buying homes or refinancing mortgages must get "jumbo" loans, those that top the current $417,000 limit on conforming loans. Those people can have more trouble getting a loan and pay a higher interest rate, especially with the credit crunch starting last summer.

How much more expensive are jumbo loans?

As of Friday, a 30-year fixed-rate conforming loan was available with a 5.5% interest rate, said Jeff Lazerson, president of a Web-based loan shopping service called Mortgage Grader. But the best rate on a jumbo loan was 6.75%. That can make for a big difference in a monthly loan payment.

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