President Signs Economic Stimulus Package
The Economic Stimulus Act of 2008 (the "Act") was recently enacted to provide a short-term stimulus to the economy. The measure includes a cash rebate in 2008 to most individuals, and also provides incentives for certain capital investments.
Under the Act, the government will issue rebate checks to most Americans. The measure will bring advance payments of credits against 2008 income tax liabilities (i.e., the rebates) of $600 for individuals and $1,200 for couples to most taxpayers and $300 checks to low-income people, including disabled veterans and the elderly.
Eligible individuals will receive a rebate for 2008 equal to the greater of:
- the taxpayer's net income tax liability, up to a maximum of $600 ($1,200 for a joint return); or
- $300 ($600 for a joint return) if either:
- the taxpayer's qualifying income is at least $3,000; or
- his net income tax liability is at least $1 and gross income is greater than the sum of the applicable basic standard deduction amount and one personal exemption (two personal exemptions for a joint return).
Qualifying income is the sum of the eligible individual's: (a) earned income; (b) social security benefits; and (c) veteran's payments.
If an individual is eligible for any amount of the basic credit the individual also may be eligible for a qualifying child credit. The qualifying child credit equals $300 for each qualifying child of such individual.
The amount of the credit (both the basic and qualifying child amounts) will phase out at a rate of 5% of adjusted gross income (AGI) above $75,000 ($150,000 for joint returns). For joint filers with no children who would otherwise get the maximum $1,200 basic credit, the credit will be entirely lost at AGI of $174,000. A single filer with no children who would otherwise get the maximum $600 basic credit will lose the entire credit at AGI of $87,000.
An eligible individual is any individual other than: (1) a nonresident alien; (2) an estate or trust; or (3) a dependent.
Most taxpayers will receive this credit in the form of a check issued by the Department of the Treasury. The amount of the payment will be computed on the basis of tax returns filed for 2007 (instead of 2008). It is anticipated that the Department of the Treasury will make every effort to issue all payments as rapidly as possible to taxpayers who timely filed their 2007 tax returns. Taxpayers who file late or pursuant to extensions will receive their payments later.
Taxpayers will reconcile the amount of the payment they received with the credit to which they were entitled when they prepare their 2008 income tax return by completing a worksheet calculating the amount of the credit based on their 2008 tax return. They will then subtract from the credit the amount of the payment they received in 2008. For many taxpayers, these two amounts would be the same. If, however, the result is a positive number (because, for example, the taxpayer paid no tax in 2007 but is paying tax in 2008), the taxpayer may claim that amount as a refundable credit against 2008 tax liability. If, however, the result is negative (because, for example, the taxpayer paid tax in 2007 but owes no tax for 2008), the taxpayer is not required to repay that amount to the Treasury.
The Act also provides additional incentives for tax years beginning in 2008 for investments in capital equipment. The $128,000 expensing limit for Section 179 Property is increased to $250,000, and the overall investment limit is increased from $510,000 to $800,000. The $250,000 limitation is reduced by the amount by which the cost of Section 179 Property placed in service during the tax year beginning in 2008 exceeds $800,000.
In addition, the Act provides for bonus (accelerated) depreciation by allowing a bonus first-year depreciation deduction of 50% of the adjusted basis of qualified property placed in service generally during 2008.
Finally, under the Act, the otherwise applicable "luxury auto" cap on first-year depreciation is increased by $8,000 (from $3,260 to $11,260) for vehicles that qualify.
