Economic Stimulus Act of 2008

The Economic Stimulus Act of 2008 (Pub. L.Tooltip Public Law (United States) 110–185 (text) (PDF), 122 Stat. 613, enacted February 13, 2008) is an Act of Congress providing for several kinds of economic stimulus intended to boost the United States economy in 2008 and to avert or ameliorate a recession. The stimulus package was passed by the U.S. House of Representatives on January 29, 2008, and in a slightly different version by the U.S. Senate on February 7, 2008. The Senate version was then approved in the House the same day. It was signed into law by President George W. Bush on February 13, 2008. The law provides for tax rebates to low and middle income U.S. taxpayers, tax incentives to stimulate business investment, and an increase in the limits imposed on mortgages eligible for purchase by government-sponsored enterprises.

Tax rebates

The tax rebates created by the law will be paid to individual U.S. taxpayers during 2008. Most taxpayers below the income limit will receive a rebate of at least $300 per person ($600 for married couples filing jointly). Eligible taxpayers will receive, along with their individual payment, $300 per dependent child under the age of 17. The payment will be equal to the payer's net income tax liability, but will not exceed $600 (for a single person) or $1200 (married couple filing jointly). Net liability can be found in these locations:

• Form 1040: line 57 plus line 52
• Form 1040A: line 35 plus line 32
• Form 1040EZ: line 10

Economic Stimulus Payment Calculator

Those with no net tax liability will still be eligible to receive a rebate, provided they meet minimum qualifying income of $3,000 per year. Rebates will be phased out for taxpayers with adjusted gross incomes greater than $75,000 ($150,000 for couples filing jointly) in 2007. For taxpayers with incomes greater than $75,000, rebates will be reduced at a rate of 5% of the income above this limit. Individuals who are claimed as dependents by another taxpayer are not eligible for the rebates.

The $3,000 of qualifying income includes earned income (e.g., wages, self-employment income, Social Security), however Supplemental Security Income does not count as qualifying income for the stimulus payment. Also, low-income workers are required to file a return to receive the payment, even if they would not be required to file for income tax purposes.

Some taxpayers who exceed the income limits, but have qualifying children, will still get a rebate. For example, a single parent whose 2007 adjusted gross income was $90,000, pays more than $600 in 2007 taxes and has two qualifying children will receive a rebate of $450. The IRS adds together a $600 rebate for the parent and $600 for the two children to get $1,200, then subtracts the phaseout reduction of $750 ($50 for each $1,000 income above $75,000) to get $450.

Also, any taxpayers who filed their returns jointly are not eligible for payment if any of the persons on the tax return filed with an Individual Taxpayer Identification Number (ITIN) instead of a social security number. For example, if a family of five had one parent with an ITIN, no money is payable to any member of the family, including US citizens with valid social security numbers. As a result, many legal resident aliens and overseas military families will not receive any payment. US citizens who will not receive payments include those who have a parent or spouse who is not a citizen and who does not qualify for a social security number (not authorized to work in the United States). US citizens may amend their tax returns to file separately, but in most cases this results in a lower deduction for dependents, thereby canceling any benefit from the stimulus payment. In many cases, it is better to forgo the stimulus payment than to file an amended tax return.

According to the IRS, the stimulus payment will not reduce taxpayers' 2008 refunds or increase the amount owed when filing 2008 returns.

The payment schedule is based on whether the taxpayer's 2007 tax return listed direct deposit information as well as the last two digits of the social security number of the tax return's main filer, with direct deposits being sent between May 2 and May 16, and paper checks being sent between May 16 and July 11. On April 25, 2008, President Bush announced that the rebates will start going out on April 28, 2008 and the paper checks will be sent out starting on May 9, earlier than previously announced by the IRS.

Taxpayers who used direct deposit for their refunds will receive the stimulus payment that same way, provided they have not done any of these things:

• Taken out a refund anticipation loan or "rapid refund";
• Used a service such as TurboTax and had the transmission fees taken out of the refund amount;
• Allowed their tax preparer (such as a CPA) to deduct their fee from the refund amount.

If any of these scenarios apply, the payment will be sent as a paper check through U.S. mail.

Business tax incentives

The law offers businesses a one-time depreciation tax deduction equal to 50% of the cost of specified kinds of new investment during 2008. Qualifying investments include tangible property, such as industrial or business equipment, expected to remain in use for less than 20 years, purchased computer software, water utility property, and qualified leasehold improvements. The law also raises the limits on the value of new productive capital (machinery, equipment, and some other types of property) that businesses may exclude from their income as business expenses during 2008. Previously, the limit on expensable productive capital investments had been $128,000, reduced (but not below zero) by the amount by which the value of those investments exceeded $510,000. The law raises those limits to $250,000 and $800,000 respectively. The law does not change the requirement that expensed investments cannot exceed a business's income to be claimed as a loss.

Rationale

As 2008 began, economic indicators suggested an increased risk of recession. Federal Reserve Chairman Ben Bernanke testified before Congress that quick action was needed to stimulate the economy through targeted government spending and tax incentives. Facing an election later in the year, Congress moved rapidly to pass such legislation. In passing the legislation, lawmakers aimed to stimulate spending by businesses and consumers during 2008. They hoped that the targeted individual tax rebates would boost consumer spending and that targeted tax incentives would boost business spending.

Lawmakers raised the limits on conforming mortgages eligible for government insurance and GSE purchase in response to the subprime mortgage crisis. This crisis had resulted in a widespread credit crunch by late 2007. The credit crunch led to a reluctance by lenders to issue so-called jumbo mortgages for the purchase of houses that exceeded the FHA and GSE limits. The United States housing bubble had pushed house prices above those limits in many areas of the country. As interest rates rose for jumbo mortgages, fewer buyers could afford them, and house prices were being forced down toward the limits for conforming mortgages. By raising those limits, lawmakers hoped to slow or halt the decline in house prices, which threatened the financial well-being of both homeowners and banks or other financial entities holding jumbo mortgages.

The FHA loan limits also went up with the stimulus package on March 6th. The loan limit package is called "FHA Forward." https://entp.hud.gov/idapp/html/hicostlook.cfm

References

Reference #10 refers to a report on American Public Media's "Marketplace" dated April 1, 2008. This report was an April Fool's joke. Reference to it should be deleted from this report.

External links

• Economic Stimulus Payment Calculator
• Economic Stimulus Payment Mailing Dates
• The text of the act
• Stimulus Payments: Answers to Frequently Asked Questions
• Lending Clarity on the significance of higher mortgage limits
• Receiving The 2008 Tax Rebate Requires Tax Returns To Be Filed