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Rebate may affect state tax

I would like to know how the tax rebates will affect next year's taxes. Will we have to add them to our 2008 income, reduce our 2008 rebate by the amount? I've heard both.

— Carolyn B., Medford

The stimulus package checks, approved by the House of Representatives and Senate and signed by President Bush, won't affect your federal taxes, but it may have an impact on your Oregon income tax filing next year.

To summarize, the rebate that will be sent out in May 2008 is a credit to the taxes you'll owe on 2008 income, but it is a new credit, so you don't have to "pay it back."

To receive the rebate, you need to file your 2007 tax return. The amount of the rebate is calculated using your earned income; if you earned more than $3,000 in 2007, you'll be eligible, but if you had an adjusted gross income of more than $75,000, then the rebate will be reduced by 5 percent of your overage.

The rebates will be based on 2007 tax filings due April 15.

A memo from the Internal Revenue Service sent to accounting firms said the Treasury Department will begin sending out stimulus payments in May. Even some people not normally required to file will be eligible for the checks. That group includes people with more than $3,000 of qualifying earned income, net self-employment income, Social Security, some railroad retirement benefits and veterans disability compensation.

There might, however, be a rub for Oregon taxpayers. Oregon presently allows taxpayers to deduct $5,500 (that figure is indexed) of federal income tax from Oregon taxes. If you paid more than that, the rebate may lessen how much of a "federal tax benefit" you can claim on your Oregon return.

"The key is your tax benefit from federal tax paid the previous year," said Jason Hansen of Purkeypile and Johannsen Certified Public Accountants in Medford.

For example, if your federal tax liability was $2,500 and you receive a $600 rebate, the state will see it reducing your federal tax liability to $1,900. You'll only be able to deduct $1,900 on your 2008 Oregon return and not $2,500.


The volume of questions received prevents us from answering all of them.