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Possibly. The Economic Stimulus Act of 2008 created a tax rebate for individuals that is based on income in 2007 and/or 2008. Most taxpayers qualified for the whole rebate on 2007 income, and checks were mailed to them in 2008. However, the rebate is still available as a tax credit (not as a check) for a minority of people who did not qualify for the rebate check on 2007 income, or whose 2007 income qualified them for only a portion of the full rebate (see the discussion of income phaseouts below). People with stock compensation may fall into this group.
If stock option exercises or restricted stock vesting in 2007 caused a spike in your income that pushed you out of the rebate range, you may be able to claim the rebate in the form of a credit on your tax return for 2008 (filed in 2009) now that your income has fallen back to a level that qualifies. Similarly, if you qualified for only a part of the whole rebate on your 2007 income, you may be able to claim the remainder as a credit on your 2008 tax return. Fortunately, if your AGI in 2008 is higher than the 2007 AGI used to calculate the rebate you received, you do not need to refund any of the rebate with your tax return for 2008.
The IRS is calling this credit the Recovery Rebate Credit. According to the IRS, only a tiny fraction of taxpayers will qualify for the rebate credit on 2008 income, chiefly because most people who were ever going to qualify for it received the full amount on 2007 income.
The IRS has reported that early tax returns have included some recurring mistakes involving the rebate credit. Some tips: - Rebates issued in check form during 2008 are not taxable, so these should not be included in your 2008 income.
- If you received a partial rebate on 2007 income, be sure you know the exact amount you received so that you or your tax-return preparer can correctly calculate the remaining credit on your return for 2008. Many of the early mistakes have involved simple miscalculation.
- When you prepare your federal tax return, calculate the amount of any rebate credit on the rebate worksheet or in the equivalent part of tax-return software. Then enter this amount on line 70 of Form 1040, Line 42 of Form 1040A, or Line 9 of Form 1040EZ.
- Those who received the full rebate amount on 2007 income ($600 for single filers, $1,200 for joint filers, plus $300 per qualifying child) cannot claim any rebate credit on the 2008 tax return. In this case, enter zero on the appropriate line of your tax return, or simply leave the line blank.
Rebate/Credit Amounts & Phaseouts
The basic rebate/credit amounts are: - between $300 and $600 for individuals with at least $3,000 in earned income, including Social Security benefits, and/or veterans' disability benefits
- between $600 and $1,200 for joint filers with at least $6,000 in earned income
- an additional $300 per qualifying child (analogous to the definition of the child tax credit), without a limit on the number of children
"Earned income" includes income from stock compensation reported on your W-2 (e.g., income from the exercise of nonqualified stock options or from the vesting of restricted stock or restricted stock units).
The rebate/credit is phased out at a rate of 5% of the amount by which your adjusted gross income (AGI, line 37 on your Form 1040) exceeds the thresholds of $75,000 for single filers and $150,000 for joint filers. Therefore, if you're single with no children, your $600 rebate is eliminated at $87,000 of AGI, and for joint filers with no kids the $1,200 rebate disappears at $174,000 of AGI. The point for complete phaseout would be higher if you had children. Example: You are married, file jointly, and have two qualifying children. You are eligible for a rebate of $1,800 ($1,200 plus two $300 child rebates). However, if your AGI is $186,000, the rebate is completely phased out, as you are $36,000 over the $150,000 threshold (5% x $36,000 = $1,800). Incentive stock options (ISOs), if you exercised them and held the stock through the end of 2008, are not part of your AGI and therefore would not affect the rebate (this spread is part of your AMT calculation). Similarly, the discount on shares bought in a tax-qualified ESPP that are held through the end of the year are not included in AGI.
The IRS has a fact page about the rebate credit on its website. For content on many other tax return topics related to stock compensation, including annotated examples of Schedule D and Form W-2, see the Tax Center on myStockOptions.com. |
