Do you like the information on this blog? Be sure to subscribe to our feed to receive updates on new articles.
CNN really needs to verify the information that people spew forth when the quote someone in an article before publishing it, even if it is just an online article.CNN posted this article on Friday about the potential passing of the economic stimulus plan that would put tax money back into the hands of the Americans. This quote was originally posted in the article:
“The checks are an advance on next year’s refunds, and most, if not all of the money, will be deducted from taxpayers’ refunds in 12 months’ time. ”
The word spread pretty quickly and people started getting very agitated. That sentence made it sound like the IRS was going to deduct the refund from anything you received as a tax refund next year, thus giving you a deficit owed to the IRS. This is simply not true, and it would be completely ridiculous for a detail like this to not be made public to the American public.
A few hours later, the quoted statement above was taken off of the CNN article because whoever stated, either didn’t know what they were talking about or the way they said it, took on a whole new meaning that they did not intend for it to take. The best way to explain it is by example of how the refund is going to work.
You will receive between either $0 – $3,000 as an economic tax refund for your 2008 taxes. You can go to this calculator to estimate how much you will get back. In 2009, when you are filing your 2008 tax returns, the tax code will be updated to reflect the “economic stimulus plan” tax credit that is due to all Americans meeting the certain qualifications. Let’s say that they never gave out that money in 2008, then you would have received that tax credit as part of your refund in 2009. But, since you will receive it in advance, the credit you would have received, will be cancelled out by the money you received in advance.
Typical questions you might have about what I just said:
So, is this really nothing extra if it is “cancelled out”?
No, it IS something extra, because the tax credit never existed until now. I am assuming that if you have ever filed a tax return on your own, then you know the differences between a credit and a deduction. A tax deduction just reduces your adjusted taxable income that will be the figure to determine how much federal tax you owe. A tax CREDIT is an actual reduction from the taxes that you owe. If you owe $1,000 in taxes, and you receive a tax credit of $1,200, you would actually receive a refund of $200, assuming that you withheld exactly $1,000 in federal taxes out of your paycheck.
What will happen if I qualify based on my 2007 taxes for the refund check, but not based on my 2008?
They won’t ask for the money back. You beat the system. Hooray for you!
What if I don’t qualify for the tax credit based on my 2007 taxes, but I do qualify for it based on my 2008 taxes?
This would be a sitaution where you made $100,000 last year, but this year you made $70,000. This would be very relevant to someone like a real estate agent. You would have the chance to apply for the tax credit on your 2008 tax return come April of 2009. You’ll still get the money back, it just won’t be until tax time of 2009.
A question from one of the Money Crasher readers:
If you owe taxes will you still get the refund or will the IRS apply it towards what you owe? as
I am assuming that you mean if you owe taxes for 2007, will you not get the 2008 refund check? The answer is yes. You can think of it as a tax credit refund advance. So, it applies to your 2008 taxes, and has nothing to do with your 2007 taxes whether you owe money or are receiving a refund for your 2007 taxes. It does base the amount you’ll receive on what you filed for your 2007 taxes, but if your income changes drastically or you have a child or two in 2008, the above questions apply.
If you want more explanation of this go to these sites for more info:
If you think that the current federal tax code is extremely complicated and even when you’re getting money back from the IRS, you can never truly figure out why, then check out The Fair Tax. This is a tax reform that I strongly support, and you can read the book about how it works and also the book coming out soon that answers the critics about it as a real, bonafide reform to our current tax code.