Expecting a Tax Rebate?
Avoid the Urge to Splurge in Advance
If you are one of the many taxpayers expecting a rebate as part of the recently signed Economic Stimulus Act of 2008, you may be planning to help your country avoid a recession by spending it immediately, or even in advance. That is certainly what the government is hoping you'll do, but holding off on that trip to the mall, the spa or the car dealership is a better idea, according to GreenPath credit counselors.
"Everybody's happy to learn they'll receive unexpected cash, but we see a lot of personal finance problems caused by anticipation spending," said Mark Ernst, a GreenPath credit counselor in Farmington Hills, Mich. "In this case, especially, I'd like to see people plan their wise use of the money now, but wait until they actually have the check in hand to make a move."
Why is waiting the wisest thing to do?
First, estimating your rebate amount may be more difficult than you expect. While the numbers $300, $600, $900 and $1,200 keep rolling off of everybody's tongues, there are a lot of rules, exceptions and adjustments to consider if you're trying to determine how much you can expect to see in your rebate check. If your guess is wrong, you could end up with an unexpected loss or an unwanted increase in your debt load. After all, a $600 rebate would be nothing to rejoice about if someone anticipated - and spent - $1,200 while they waited for it.
Next, not everybody will actually get a rebate. Under the Act, most working people will get $600 if they are single or $1,200 if they file a joint return, assuming they owed at least that much in federal income tax in 2007. They'll get more if they have children under the age of 17 and less if they didn't owe at least that much in 2007 taxes. The rebate is also reduced incrementally for people who earn above certain income levels and some people won't receive rebates at all, even though they meet all of the income and tax liability requirements.
Among those who won't receive a rebate at all are young adults still listed as dependants on their parents' returns, nonresident aliens and high earners - childless singles earning $87,000 or more and childless couples with a household income of more than $174,000.
Finally, while the stimulus package will certainly have a positive impact on some things, like retail sales, it may not actually help avoid a recession. GreenPath counselors urge people who think they may have to worry about job loss or budget shortfalls in a faltering economy to wait patiently for their rebate and put it away into an emergency fund the moment it arrives.