President Bush signs Economic Stimulus Act of 2008

After two weeks of negotiations, the Senate agreed to the Economic Stimulus Act of 2008 on February 7, 2008, and the bill was approved by the House of Representatives that same evening. President Bush signed the bill on February 13, clearing the way for the Department of the Treasury and the IRS to make preparations to issue the checks. In addition to the rebates headed to individual taxpayers, the Act also includes several business tax breaks. Here is an overview of the $152 billion Act that is designed to jump-start the U.S. economy.

Tax rebates
Tax rebates (officially known as “advance credit payments”) are the centerpiece of the economic stimulus plan, and will be given to approximately 130 million Americans. Upon filing your 2007 Federal Tax Return, you will qualify to receive your rebate. Single filers will receive a one-time tax rebate of up to $600. Married couples filing jointly will receive a one-time tax rebate of up to $1,200. In addition, the law provides an additional $300 rebate per qualifying child. The Act limits the rebates to individuals with adjusted gross incomes below $75,000 and married couples with AGI below $150,000. Rebates begin to phase-out at the $75,000 and $150,000 levels, with the amount of the rebate paid decreasing by 5 percent of the amount that exceeds those AGI thresholds. The $600 credit for individuals phases out completely at $87,000 of AGI, and the $1,200 credit for joint filers phases out at $174,000 of AGI. For a sample calculation of the phase-out amounts, please contact Kim Jakob or Mike Scialo in our Tax Department.

For most low and middle-income taxpayers, the rebate in effect gives back whatever tax was paid for the 2007 tax year at the 10 percent bracket level up to $6,000 of taxable income ($12,000 for joint filers). For example, a single individual with $4,000 taxable income and $400 in net income tax liability for 2007 will receive a $400 rebate; someone with $40,000 taxable income and $6,400 in net income tax liability will receive the maximum $600 rebate.

The IRS will calculate the proper amount of the rebate check based on the 2007 tax return information or other certification. However, if the IRS makes a mistake, or it discovers that the taxpayer’s initial return information was incorrect in a way that affects the credit, it can get the rebate back quickly. The new law allows the IRS to treat mistakes as a clerical error, which means that the IRS can bypass deficiency procedures and proceed right to collection.

Getting rebates to taxpayers
Getting rebates into taxpayers’ hands quickly is going to be a huge challenge for the IRS. Right now, the IRS is fully engaged in processing millions of 2007 tax returns and issuing refund checks. Moreover, the government can only print about nine million checks a week.

Rebates may have to wait until the 2008 filing season ends. In that case, the government would likely start printing and sending rebate checks this summer. If you do not file your return until the extended deadline of October 15, 2008, you will not receive your rebate check until year-end.

Business incentives
The economic stimulus package also includes business tax incentives that amount to $44.8 billion in tax relief accelerated in one year: 2008.

Small business expensing: The new law almost doubles the amount of Section 179 depreciation from $128,000 to $250,000, and increases the threshold amount for reducing the deduction from $510,000 to $800,000. Businesses can “expense” the cost of depreciable tangible personal property used for business purposes that are placed in service in tax years beginning with 2008.

Bonus depreciation: The new law provides qualifying taxpayers 50 percent first-year bonus depreciation of the adjusted basis of qualifying property. Included in these changes were increases to the maximum depreciation amounts for “luxury” vehicles. For more information about how the changes may affect your business, please contact Mike Scialo or Kim Jakob in our Tax Department.


Corbett, Duncan & Hubly will continue to monitor developments and keep you posted. If you have any questions about the tax rebates or the economic stimulus plan, don’t hesitate to contact us at 630-285-0215, or check our web site for updates at www.cdhcpa.com.

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