Confused About the Upcoming Tax Rebate?

Welcome to the club. As a tax preparer, I have had a tremedous amount of questions and have found that there are all kinds of erroneous information floating around about the advance on refunds. I hope that the following information will help enlighten folks on exactly what the outcome will be in their specific tax situation.

$300 for retirees, $600 for most individuals and $1,200 for most couples.

But wait, there's more: It's not really free money.

Some Americans are getting awfully excited about the prospect of spending their own money.

The $168 billion economic stimulus package just passed by Congress will ship checks of up to $600 for individuals and $1,200 for couples starting in May. Most households will get these checks, although individuals with adjusted gross incomes of more than $75,000 and couples making more than $150,000 will see less or nothing at all.

Additionally, families will get $300 per child.The biggest change since the original proposal: Those who paid no income taxes will get $300 as long as they earned at least $3,000, including veterans disability or Social Security benefits.An estimated 130 million taxpayers will share the rebate money.

Here's what you need to keep in mind while you're waiting:

This isn't free money -- for most people

To produce this cash, Congress created a one-time tax credit to reduce taxable income for most taxpayers this year. Normally, you wouldn’t see that cash until the spring of 2009, when you filed your 2008 return. But Congress wants to speed that money to you now, so checks will start going out in May.

• Smart Spending blog: Rebate? Bonus? One is easier to spend

Remember, this is your money you're getting back, and the rebate checks are basically an advance on your 2009 refund. When similar rebates were sent out in 2001, a lot of people were upset to see their (next) refund reduced.

The only people for whom this really is free money are low-income folks (those who earn at least the minimum $3,000 required to trigger the checks or who receive at least $3,000 in Social Security or veterans benefits) who won't end up owing any taxes for 2008.

If that's your situation, or you somehow wind up with a check when you technically shouldn't have -- you earned income in 2007 but won't in 2008, for example -- you won't have to pay back the money.

S. Raines, Sr. Financial Advisor/Tax Preparer