KSFR's tax expert on those rebate checks SANTA FE (KSFR) - Has that IRS rebate check you expected not shown up? Has it shown up but is less than what you expected? Hundreds of thousands of taxpayers are asking those questions. Alan Kalman, our business and finance reporter has answers for you.


Q. There have been reports of rebate payments not showing up, payments being delayed and payments that are less than expected. What is going on?


A. Let's first look at those taxpayers who were expecting a rebate to be direct deposited into their bank accounts. May 16th was the deadline for direct deposit and the IRS has issued over 45 Million payments. Paper checks are being mailed between May 16th and July 11th. There is a large subset of taxpayers that will not get rebates direct deposited even though there may have been bank account information on the filed tax return.


Q. Who are these taxpayers?


A. If you used a paid preparer and requested a RAL (Refund Anticipation Loan), the bank account information is not the taxpayer's bank account. The taxpayer is getting an immediate payment from the tax preparer less fees and interest and the refund goes to the preparer. These taxpayers will get a check.


If you had the fee for filing your tax return deducted from your refund, then you will also get a check because the bank information relates to a third party.


Q. Is this also true for those who file at home using tax software?


A. Yes. For example, if you used Turbo Tax and had the e-filing fee deducted from your refund rather than paying it separately, then you will get a check. RALs and fees account for over 20 million taxpayers who will not get direct deposit of their rebates.


Q. Any other issues with direct deposit.


A. Yes. Many taxpayers who don't get a refund but rather owe a balance to the US Treasury, elected to have the payment electronically transferred out of their checking account and entered the bank account information on the tax return. Tax software doesn't allow a taxpayer to enter direct deposit information when there is no refund. These taxpayers will also get a check even though the bank account information is on the return.


In addition, we also have certain taxpayers who split their refunds between bank accounts. If you had more than one account listed, then you will also get a check. And finally, some taxpayers have closed their checking accounts and forgot that the rebate was going to go to that account.


Q. What happens in that case?


A. The bank will reject the deposit and when the Treasury gets the information, a check will be mailed.


Q. Besides closing accounts, people also move. What happens to a rebate check if people have moved?


A. It could be returned as undeliverable. People who have moved should file IRS Form 8822, Change of Address and mail it to the IRS. New Mexico taxpayers should mail it to the IRS at Fresno, CA, zipcode 93888-0023.


Q. What about problems with receiving less than expected?


A. There are many reasons why a taxpayer would receive less or possibly nothing.


Any taxpayer who owes back taxes or back child support or has defaulted on student loans could have their rebate payments seized by the IRS. If this happens, the IRS will send a letter to the taxpayer explaining why their rebate was less or was seized in its entirety.


Q. Does this also include taxpayers who already are on some form of installment payment schedule with the IRS?


A. Yes it does. The balance owed would be reduced and the outstanding balance would be paid off sooner.


There is also a subset of about 350,000 taxpayers who were expecting to receive $300 for each eligible dependent child and did not receive it because they failed to identify those children as being eligible for the Child Tax Credit.


Q. I thought dependent children were all eligible.


A. Only those qualifying children who were under age 17 in all of 2007 are eligible for the Child Tax Credit and therefore only those children are eligible for the $300 rebate. A taxpayer would have had to check Box 6c if they filed a paper tax return. The IRS is aware of this and is double checking those tax returns. A catch up check will be mailed in July for these taxpayers.


Q. Any other problems?


A. Oh yes. Many taxpayers don't fully understand the rules for how much of a rebate they are entitled to. We tried to explain this in our first broadcast on this subject a few months ago. If you had qualifying income of at least $3000, you are entitled to a minimum of $300 a taxpayer ($600 on a joint return). If you had a total tax liability not counting the Child Tax Credit that exceeded $300 then you would get a rebate equal to your tax liability up to a maximum of $600 a taxpayer ($1200 on a joint return). So, if you did not have qualifying income but had a tax liability that was less than the $300 or $600 on a joint return, you would only get a rebate equal to that tax liability.


Q. Who would have a tax liability but not have qualifying income of $3000?


A. Qualifying income consisted of any combination of earned income, social security benefits and tax-free veterans' benefits that totaled $3000. Many taxpayers fail that test but still have a tax liability because of interest, dividends, capital gains, royalties, and distributions from retirement accounts such as IRAs and retirement plans.


In addition, one of the rules required that taxpayers have a social security number. This was included in the tax bill in order to preclude those taxpayers who were not lawful residents to obtain a rebate. So, if you filed a joint return and one of the spouses only had an ITIN (individual taxpayer identification number). Then no rebate would be issued. If a dependent child only had an ITIN and was under age 17, there would not be a $300 rebate for that dependent child.


Q. That seems to be unfair to those who are lawfully present in the U.S., working and paying taxes.


A. Well, we are not discussing lawful permanent residents; those with green cards. These individuals are allowed to obtain social security numbers for their children who live with them and spouses who are also here. We are discussing those individuals who are temporarily present in the U.S. on work visas. They are here legally, pay taxes and don't get a rebate if they file a joint return. This is unfair. But, there has never been a tax bill that passed Congress that didn't treat some set of taxpayers unfairly. Besides, what appears to be unfair may just be in the eye of the beholder.


Q. We were discussing direct deposit earlier and you mentioned those taxpayers who had split deposits would not be getting direct deposit of their rebate. What if the direct deposit was going into a tax sheltered retirement account such as an IRA at a bank?


A. Good question. If a taxpayer had a refund directly deposited to an IRA or some other form of tax sheltered account such as an HAS (Health Savings Account), then the rebate will also go into that same account. This may not be what the taxpayer wants and in addition, it may be an excessive contribution for the tax year. The IRS has announced that any taxpayer who has their rebate check direct deposited into one of these accounts will be allowed to withdraw an amount no greater than the deposit without having to pay any income tax or any early withdrawal payment on the distribution as long as the distribution is made before 4/15/09, the normal filing deadline for 2008 tax returns. For those who file for an extension, the deadline would be 10/15/09.


Q. How does this work?


A. The taxpayer must contact the trustee of the account and request a distribution. The 2008 tax forms will include instructions on how a taxpayer must report this distribution as the trustee will issue a Form 1099-R to the taxpayer.


Q. Is there some place a taxpayer can get help on these issues other than having to call the IRS and wait on hold?


A. Yes. The IRS has a separate website that deals only with Economic Stimulus Payments. The easiest way to get access is to just go to WWW.IRS.GOV and click on the applicable link. If you want to know where your payment is, click on Where's My Refund and then click on Where's My Stimulus Payment . If you want to know how much you are entitled to, you can use the IRS calculator. Just click on the link that says Rebate Payment Questions and follow the link to the calculator. All the other links are all self-explanatory.
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