Second chance on Rebate and Tax Increase?

Since the final legislation for the stimulus package and the rebates has been enacted, various news reports are indicating that it's in effect a prebate on 2008 taxes, except that payments this year are based on 2007 payments and in some circumstances don't have to be paid back.

The IRS is less forthcoming, and their web site does not indicate that there's a second chance at the rebate in 2009 when filing the tax return for 2008. And no indication whether the tax credit will be phased out for those with an AGI above $75000 this year, so I still don't know whether the Tax Rebate is a Tax Increase for Some.

If the phaseout is in effect based on 2008 AGI, and your income is just above the phase-out threshold, then it may be possible to get the rebate by increasing your 401(k) before-tax contributions, since this will lower your AGI.

Hopefully the IRS will soon update their web site, so that it won't be necessary to parse the language of the legislation to figure this out.

Tax Rebate = Tax Increase for Some

The title is counter intuitive, so let me explain. The tax rebate as proposed is phased out for "high" income, for example a single with an AGI of $75,000. The $600 rebate is phased out over the $12,000 of AGI between $75,000 and $87,000. For someone with an income in this range, this is effectively a marginal tax increase of 5%. With an original marginal tax rate that's probably 5% (assuming deductions near the standard value), the effective tax rate is now 30%.

I am caught in this. If I had known about the tax rebate terms last year, I could have adjusted the amount of tax-deferred savings I converted to a Roth IRA.

I can see some merit to the argument that the tax rebate is really the US government borrowing money from the Chinese so the poor can buy Chinese goods. Either the bill for the tax rebate will have to be paid, or interest will be paid in the mean time. Probably increasing the taxes I'll have to pay on tax-deferred savings withdrawn in retirement. So in the end the extra taxes I effectively paid on part of my Roth conversions may balance out in the end.