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America , Don't Blow This Rebate

Congress wraps up the details: $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.

Remember, this is your money you're getting back, and the rebate checks are basically an advance on the credit you'd otherwise get in 2009.

If it turns out that you're entitled to a bigger tax credit than the checks you receive, you'll be able to claim that when you file your return next year. If you got too much, you won't have to pay back the excess.

But you'll have to account for any rebate checks you receive this year when you fill out next year's taxes. That doesn't mean you'll get less than what you would have if there were no tax credit and rebate check --- but accounting for the checks on your next return will ensure you don't get the tax credit twice.

Still, the rebate checks may cause confusion when people file next year's return. When similar rebates were sent out in 2001, said tax expert Mark Luscombe , "a lot of people were upset to see their (next) refund reduced."

By the way, even if you didn't earn enough in 2007 to be required to file a tax return by April 15, Luscombe said, you probably should do so anyway to make sure you get on the Internal Revenue Service's mailing list for the rebates.

The agency will get information from the Department of Veterans Affairs and Social Security to make sure those recipients get rebate checks, Luscombe said, "but regular taxpayers will need to file (for 2007) to get on the list."

You'll be in good company, according to recent polls. Forty-seven percent of those polled by Harris Interactive for CCH and 42% polled by Zogby International for TransUnion said they planned to use the checks to pay down debt. (The Harris poll didn't provide a margin of error; the Zogby poll's margin of error was plus or minus 1.8 percentage points.)

In both polls, 21% said they planned to spend the check. The rest said they'd save or gave some other answer.

Middle- and lower-income householders were more likely to say they were going to pay off debt. Debt payers included:

Just remember that paying off a chunk of debt won't get you ahead if you just wind up charging up the cards again. Check out the Smart Spending blog for ideas on how to trim your expenses and create a debt payoff plan so you can say goodbye to credit card debt forever.

Even though this windfall really isn't a windfall, it'll be hard to convince your brain of that fact once you have the check in hand. Consider satisfying the urge to splurge by spending a portion of the check (10% maybe, 20% max) and saving the rest.

If you don't think it's worth saving such a small amount, read "Why you need $500 in the bank" to learn how a cushion of just a few hundred bucks can have truly life-changing benefits.

If you're going to buy, buy American.

The whole point of these checks is ostensibly to keep the U.S. from sliding into a recession. Buying more stuff made in China won't accomplish that end. In fact, it will make our already mind-blowing trade deficit even worse.

So no plasma TV for you, bucko. If you care about the U.S. economy, buy an Oreck vacuum, a Speed Queen washer or dryer, a Whirlpool dishwasher or an Amana fridge. Or plan a nice little getaway somewhere local, so you're spending on food, services and lodging that will keep the money in the U.S. rather than on foreign oil.

Article by: Liz Pulliam Weston

Article source: msn.money.com