As a follow-up to stories on the recently passed economic stimulus package, I thought I would send post some thoughts from Francine Lipman, a professor of both law and economics at the law and business schools at Chapman University. You can find her bio here: http://www.chapman.edu/law/faculty/lipman.asp.
With President Bush's signature the 2008 Economic Stimulus bill became law last week. As a result, taxpayers and their professionals and the IRS are struggling to understand the new legislation. Specifically taxpayers are asking do I qualify for the tax rebate; how much will I receive and when will I receive it. Most notably, low-income taxpayers who often rely on their tax refunds to finance their critical needs are struggling to understand how this works.
Like most tax laws, the new legislation is complicated and lacks transparency. While the rebate is a 2008 tax credit the advance payment of the 2008 tax credit will be based upon 2007 tax filings. However, taxpayers who do not qualify for the advance payment can qualify for additional amounts with their 2008 tax return filing. Unfortunately, this means that millions of individuals who do not otherwise need to file (because their income is so low or because their only source of income is Social Security benefits or Veterans disability income) must file a 2007 tax return to get the advanced payment of the 2008 tax rebate. Low-income taxpayer advocates are concerned that much of the $300 tax rebate for these individuals will end up in the pockets of paid tax preparers who often charge $100-$200 for a tax filing and more for Refund Anticipation Loans (a loan against the future forthcoming rebate).
In addition, to requiring at least $3000 of earned income; certain Social Security benefits or Veterans benefits, eligible individuals must have a Social Security number (SSN). If a taxpayer files married filing jointly both taxpayers must have a Social Security number. This may force certain taxpayers with a spouse that does not have a Social Security number to file married filing separately, which may have adverse tax consequences and cause the loss of other tax credits (e.g., educational tax credits, exclusion from taxation of Social Security tax benefits). IN addition, to qualify for an additional $300 per qualifying child, the child must have a SSN. The legislative history for this requirement is that Congress did not want the rebate to go to undocumented immigrants. However, this requirement is overbroad (there are legally present individuals in the US who do not have SSNs because they are not permitted to work and they are not working) and poorly targeted (there are many individuals who have SSNs who are VISA overstayers or who have a SSN that states that they are not authorized to work who will receive the credit).
The requirement for a SSN under the 2008 tax rebate is similar but less restrictive than the requirement for an SSN under the earned income tax credit (EITC). Under the EITC all taxpayers (including working or nonworking spouses must have a SSN), but if they receive a SSN at a later date they may retroactively file for EITC benefits for up to three prior tax years. This can generate a significant refund. The 2007 EITC can be as great as $4716. Under the EITC only SSNs which permit work qualify a taxpayer for the credit, but this does not seem to be a requirement under the tax rebate.
The requirement for a SSN under the 2008 tax rebate is more restrictive than the requirement for the current child tax credit (which is up to $1000 per qualifying child). To qualify for the child tax credit a qualifying child must have a taxpayer identification number, which can be a SSN (permitting or not permitting work) OR an individual taxpayer identification number (that is, an ITIN).
Given these complexities as well as others the 2008 tax rebate is consistent with our overly complicated tax system.
With President Bush's signature the 2008 Economic Stimulus bill became law last week. As a result, taxpayers and their professionals and the IRS are struggling to understand the new legislation. Specifically taxpayers are asking do I qualify for the tax rebate; how much will I receive and when will I receive it. Most notably, low-income taxpayers who often rely on their tax refunds to finance their critical needs are struggling to understand how this works.
Like most tax laws, the new legislation is complicated and lacks transparency. While the rebate is a 2008 tax credit the advance payment of the 2008 tax credit will be based upon 2007 tax filings. However, taxpayers who do not qualify for the advance payment can qualify for additional amounts with their 2008 tax return filing. Unfortunately, this means that millions of individuals who do not otherwise need to file (because their income is so low or because their only source of income is Social Security benefits or Veterans disability income) must file a 2007 tax return to get the advanced payment of the 2008 tax rebate. Low-income taxpayer advocates are concerned that much of the $300 tax rebate for these individuals will end up in the pockets of paid tax preparers who often charge $100-$200 for a tax filing and more for Refund Anticipation Loans (a loan against the future forthcoming rebate).
In addition, to requiring at least $3000 of earned income; certain Social Security benefits or Veterans benefits, eligible individuals must have a Social Security number (SSN). If a taxpayer files married filing jointly both taxpayers must have a Social Security number. This may force certain taxpayers with a spouse that does not have a Social Security number to file married filing separately, which may have adverse tax consequences and cause the loss of other tax credits (e.g., educational tax credits, exclusion from taxation of Social Security tax benefits). IN addition, to qualify for an additional $300 per qualifying child, the child must have a SSN. The legislative history for this requirement is that Congress did not want the rebate to go to undocumented immigrants. However, this requirement is overbroad (there are legally present individuals in the US who do not have SSNs because they are not permitted to work and they are not working) and poorly targeted (there are many individuals who have SSNs who are VISA overstayers or who have a SSN that states that they are not authorized to work who will receive the credit).
The requirement for a SSN under the 2008 tax rebate is similar but less restrictive than the requirement for an SSN under the earned income tax credit (EITC). Under the EITC all taxpayers (including working or nonworking spouses must have a SSN), but if they receive a SSN at a later date they may retroactively file for EITC benefits for up to three prior tax years. This can generate a significant refund. The 2007 EITC can be as great as $4716. Under the EITC only SSNs which permit work qualify a taxpayer for the credit, but this does not seem to be a requirement under the tax rebate.
The requirement for a SSN under the 2008 tax rebate is more restrictive than the requirement for the current child tax credit (which is up to $1000 per qualifying child). To qualify for the child tax credit a qualifying child must have a taxpayer identification number, which can be a SSN (permitting or not permitting work) OR an individual taxpayer identification number (that is, an ITIN).
Given these complexities as well as others the 2008 tax rebate is consistent with our overly complicated tax system.
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