Is This Legal? Five Questions on How to Boost the Tax Rebate

Put $130 billion on the table and American taxpayers can get pretty inventive. We’ve heard from lots of people with ideas about how to get the most out of the tax rebates IRS will start sending taxpayers next month. And, we’re happy to say that four out of these five ways actually work.

Pass the rebate on to a child

Q. Our income is too high for us to get the rebate. If we decide not to claim our children as dependents, can they get the stimulus payments?

A. No. The law denies rebates to anyone who can be claimed as a dependent, whether or not they actually are. Even if you could pass on the rebate, doing so would be a costly mistake. Each dependency exemption knocks $3,400 off your 2007 taxable income, and that saves you $850 if you’re in the 25% bracket, and another $100 if you’re in the 28% bracket. The rebate is worth a maximum of just $600 each to the kids.

Children of divorced parents

Q. My divorce decree provides for my ex and me to alternate claiming our three daughters as dependents on our tax returns. I’ll claim the girls on my 2007 return; he’ll claim them for 2008. Will we double up and both get rebates for the girls?

A. Yes, assuming the children are under age 17 at the end of next year and neither your nor your ex-husband’s income is too high to qualify for the rebate. (It is phased out if adjusted gross income exceeds $75,000 on a single return or $150,000 on a joint return.)

Since qualifying children add $300 each to your rebate, you’ll an extra $900 this year based on your 2007 return. If you recall, the rebate is really a prepayment of a tax credit for 2008, so your ex will get the $900 credit for the children when he files for 2008 next Spring. And, even though you won’t claim the girls on your 2008 return, you don’t have to refund the $900.

New bride, new rebate

Q. My parents are claiming me as a dependent on their 2007 return, so I know I don’t get the rebate. But here’s my question: I’ll be married after graduating from college in June. When my new husband and I file a joint return for 2008, can we claim the rebate?

A. Yes. And, if your husband doesn't get his rebate (remember, it’s really a prepayment of the economic stimulus credit), you’ll get a $1,200 credit when you file your 2008 return next spring.

Retiring into the rebate

Q. Our income is too high to receive the rebate this year. But I’ll be retiring in mid-summer and expect our 2008 income to fall well below the $150,000 cut off. Will we get the rebate when we file for 2008?

A. Yes. Since you won’t get a prepayment of the credit, you’ll collect the $1,200 when you file for 2008 in the Spring of 2009.

Death of a spouse

Q. My husband died in 2007, but I’m still filing a joint return for the year. Will my rebate be $600 or $1,200?

A. Filing a joint return for 2007 qualifies you for the $1,200 rebate. Even though the rebate is a prepayment of a 2008 tax return -- and you won’t file a joint return for 2008 (unless you remarry) -- you won’t have to pay back the extra $600 next year.