The IRS provided some much needed clarification on the impact of Tax Rebate Checks to Taxpayers upon the filing of their 2008 Individual Form 1040 Tax Returns. The IRS has issued a draft release of the 2008 1040 Form, and if taxpayers click on the link below, they can clearly see that on Line 70, there is item called "Recovery rebate credit". Per the IRS instructions, this should be a negative amount for those who received the Rebate checks.

http://www.irs.gov/pub/irs-dft/f1040--dft.pdf

The impact of this is that Taxpayers who received the Stimulus Tax Rebate can expect to have their refunds reduced to the extent of the Rebate Checks that they received in 2008.

There were many people who were claiming that "the 2008 rebate checks were free money and would not affect their 2008 Tax Refunds upon filing of their 2008 Individual Tax Form 1040s." Clearly this notion was a false "myth" and people who spent their Rebate Checks unwisely proved to be very foolish indeed!"

Tax experts and many money advisors of course cautioned taxpayers to exercise some prudence as to spending these so called Tax Rebate Checks. They advised taxpayers to use these Rebate Checks to pay down credit card debts.

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Ask TaxGuru Please refer to the legal disclaimer.

You may have made a mistake in your calculations, or there could be a problem with the particular instructions you're referring to.

I examined the draft "Recovery Rebate Credit Worksheet" for Line 70 of the 2008 Form 1040 (draft). This Worksheet is found within "2008 Instructions for Form 1040 - Draft Worksheets & Tables", available here: http://www.irs.ustreas.gov/pub/irs-dft/i1040gi--dft.pdf. See pages 18 and 19.

I see no indication that a negative number is to be entered on Line 70. Therefore, we will not be taxed on the Stimulus Tax Rebate received earlier this year. If the taxpayer received the full Stimulus Tax Rebate, then there should be no impact on their 2008 tax return.

If the amount on Line 29 of the Worksheet is zero or less, then -0- should be entered. Thus, no impact on taxes.

If the result on the Worksheet is greater than zero, then that positive number is to be entered on Line 70. This indicates that the taxpayer is entitled to a larger Stimulus Tax Rebate than they actually received, and the extra amount they're entitled to will be refunded via the 2008 tax form. This is the case for me personally, since we (a married couple) paid only a minimal amount in tax for 2007, so we only received a $600 rebate check (most married couples received $1,200). We owe slightly more than $600 in taxes for 2008, so we'll be receiving the additional rebate amount we're entitled to as part of our refund when we file for 2008.

If the taxpayer happened to receive more rebate money than they were entitled to based on the 2008 tax return, they DO NOT have to pay back the difference. Consider it a gift from Uncle Sam.

Please correct me if I'm wrong about this, but that's how it looks to me.