Financial Advice by Melissa Myers and Michael Tucker















Dear Melissa and Michael:

I just completed my taxes and wonder what all the fuss is about the tax rebate? I am not even sure if I will get one. Can you tell me how it works?

Signed, CASH STRAPPED

DEAR STRAPPED:
Yes, the answer to all your problems (or not!) could very possibly be in the mail soon. The current administration’s response to economic recovery is a multi-billion dollar economic stimulus package that was signed into law in February. The income tax rebate totaling $120 billion dollars in rebate checks could start going out in May. Most people should have them by July, according to U.S. Treasury Secretary Henry Paulson.

The plan was designed to put some cash into people's hands to feed the equivalent of an energy bar to the ailing economy. It will work like this:

The rebates will be based on 2007 tax returns. If you didn’t file for any reason, you will not receive a rebate.

You must have at least $3,000 in income to get the rebate. The rebate starts to phase out at $75,000 in adjusted gross income for individuals. If you have less than that in adjusted gross income, you should receive $600 as a rebate as an individual.

The rebate starts to phase out at $150,000 of adjustable gross income for couples. Most married couples who file jointly will get $1,200. Joint tax return filing is not available to gay couples, who are not eligible to elect married-couple status for purposes of filing joint tax returns.

If you are a parent, you’ll receive an extra $300 for each child under age 17 for whom you claim a child credit on your 2007 return.

Seniors with lower incomes and disabled veterans who don’t owe enough income tax to qualify for the full rebate may qualify for checks of $300, or $600 if they filed joint returns.

The government is hoping that you will spend your new-found wealth on “stuff” to stimulate economic impact that consumer spending has been shown to have. Similar to the government’s attempt in 2001 to stimulate the economy with tax rebate checks, the effects may be short-lived but are expected to provide a momentary “pop” in the economy. If you were to opt for the perhaps unpatriotic option of saving the money or using it to pay off debt, you may not have helped the economy, but you may help yourself to a much greater degree. We suggest that you consider funding the rebate into a 2008 IRA or Roth IRA. Alternatively, if you have pesky credit card debt with high interest rates, you might well use the rebate check to pay it down a bit.

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