Don’t Let Last Year’s Stimulus Check Mess Up Your 2008 Tax Return

According to the IRS, approximately 15% of tax returns filed so far have an error relating to the stimulus checks sent out last spring, the Recovery Rebate Credit. I filed my taxes last weekend, and although I had not heard of the troublesome issue some were having with the Recovery Rebate credit when filing taxes yet, I did manage to navigate my way through my tax return without any problems.

One of the main reasons this is causing confusion is because you must know and record the amount of your stimulus check, or recovery rebate credit on a worksheet if you are doing a paper return, or enter it correctly if using tax software, to accurately prepare your return. If you do not include it, it is like claiming that you did not receive a credit and you are still entitled to the recovery rebate credit.

Several of the issues with the stimulus checks include:

Not understanding that the stimulus check was an advance of a tax reduction for 2008. Basically, if you got a stimulus check, the government lowered your taxes for 2008, and gave you that in advance via the stimulus check. It does not count as income in 2008, nor did it reduce the amount of a refund you will get if you are due a refund.

Not remembering how much your stimulus check was for (the amount). If you put down the wrong amount of your stimulus refund, it will incorrectly calculate the amount you are due. If you are unsure or do not have a record of your stimulus check, visit “How Much Was My 2008 Stimulus Payment” at the IRS website.

If you did not get a stimulus check but are eligible for one, or your family status changed (i.e., birth of another child, etc.), you may be entitled to the credit on your return, but this applies only to a small percentage of the population, less that 5%.

There are several problems you can encounter if you do not account for your stimulus check payment properly:

You may claim a refund you are not entitled to- in which case your are claiming that your refund, if you are due one, is larger than it should be; or if you owe taxes, it could incorrectly reduce the amount you owe.

If you are lucky, the IRS will catch your mistake and the only problem you may run into may be a delay in your return being processed. If you owe, you could underestimate that amount, and end up owing a good deal more than you are expecting. Worse than that, if you owe taxes and do not file until April 15th, it is possible(although the IRS has not indicated they will do so) that you could get charged interest and penalties for underpaying your taxes.

It is definitely worth taking a few minutes to make sure you have the correct amount of your 2008 stimulus check, and that you accurately account for that amount on your 2008 tax return and do not take the Recovery Rebate Credit on your return unless you are truly eligible.