Is the economic stimulus package a loan?

By glblguy

IRS
Photo by: saturnism

My wife is involved in a few “mommies” forums on the internet and ran across a discussion about the upcoming economic stimulus package. Many of the ladies were saying it was a loan and not really a rebate at all. I had read/heard similar things while browsing the internet as well. Before I answer the question, let’s understand a little more about the package and it’s intent:

What is the economic stimulus package and why are we getting it?

The economic stimulus package is a tax rebate that more than 130 million households will receive starting in May. The tax rebate is not taxable, and it won’t reduce your 2007 or 2008 refund. It also won’t increase the amount you owe when you file your 2008 return.

The purpose of the stimulus package is to encourage consumer spending in order to boost the economy. The US Government is hoping that people will use the funds to purchase items and thus raising consumer spending and sales.

How much will I receive and when will I get it?

Payments will begin in May with all payments to be mailed out by the beginning of July. In order to receive the rebate, you must be eligible. You are eligible if you meet the following requirements:

  • Have a valid Social Security Number (SSN)
  • Show a qualifying income of at least $3,000 on your 2007 federal income tax return.
  • If married filing jointly, both people listed must have valid SSNs. If one doesn’t, you are not eligible

How much you will receive depends on a few factors including: Your income, whether you file individually or jointly and the number of children you have.

For individuals you will receive between $300.00 – $600.00. Those filing jointly will receive between $600.00 and $1,200.00. Those who have children will receive $300.00 for each eligible child. Eligible children include those eligible under the Child Tax Credit and those having valid SSNs.

Be aware, the rebate payments are reduced at higher levels of income. Those with higher incomes may receive a reduced payment or no payment at all. You can read more about this here.

Is the economic stimulus package a loan or not?

No, the economic is not a loan. Think about it, a loan would defeat the purpose of the package. If it was a loan, people wouldn’t spend it as they know they would need to pay it back soon. There are a number of people on the internet saying otherwise, but it isn’t true. The money is begin given to you so you’ll spend it. This is straight from the IRS FAQ:

Q. Will the payment I receive in 2008 reduce my 2008 refund or increase the amount I owe for 2008?

A. No, the stimulus payment will not reduce your refund or increase the amount you owe when you file your 2008 return.

Since it is a 2008 stimulus package, you are getting the money early. The actual amount of your final rebate will be calculated based on your 2008 tax return. If you are due more money than you received in your early rebate payment, than that will be included in your 2008 taxes, if however you received too much, you will not have to pay it back.

Additional resources:

What are your thoughts on the package? Think it will make a difference? Where is the money coming from? Add your thoughts in a comment!


35 Responses (including trackbacks) to “Is the economic stimulus package a loan?”

  1. Laura Says:

    My coworkers were talking about the package yesterday. It’s a thought on a lot of people’s minds. I’m going to pass on this article on to them to answer their questions. Thanks!

  2. RobY Says:

    Maybe someone else knows this (I don’t).

    The rebate payments begin to phase out at higher income levels (ex. married filers with AGI > $150,000). What tax year is the income tested?

    * The checks go out May 2008.
    * 2007 Tax Year filing deadline is April 15, 2008
    * 2007 Tax Year extensions can move this to Oct 15, 2008

    Is the rebate based on 2006 tax year which have already been filed? Is it based on the 2007 tax year which might not be finalized before checks are sent out? Is it based on 2008 tax year and if so how will they determine who is likely to qualify?

    If they send a check to someone who doesn’t qualify then does that person simply pay it back (this may be where the loan talk comes from) when that person files their taxes?

  3. glblguy Says:

    @RobY – It is based on your 2007 return. If you don’t you won’t receive a rebate this year.

    Tax year is 2007 but is re-evaluated again when you file your 2008 taxes.

    For those that file by April 15th, they will receive their rebates during the May – July time frame. If you file later (due to an extension) you’ll receive your payment later. If you extend to October 15th, you will get your rebate by the end of the year.

    They won’t send a check to people that don’t quality as the qualification is based on your 2007 return. IF they pay you too much money (based on your 2008 filing as the rebate will get recalculated) than you just get to keep it.

    The FAQ I linked to above answers all of these questions and more.

  4. Matt Says:

    The reason that some would say it is a loan, is that this is money is all adding to the Fed Gov debt, so those of us that will live many more years, and actually pay federal income taxes (not the bottom 50% of the country), we will have to pay it back some day.

    So, maybe more like a long-term loan, only paid back by some.

  5. Deamiter Says:

    I’m with Matt. It’s not legally a loan, but as it’s funded by treasury bonds, we’ll end up paying more in the long run.

    I’m very disappointed in both parties here — Republicans seem to think that by cutting taxes or giving back money in the form of rebates, they can force the government to reduce spending. Democrats seem to think that paying for most of a new project is enough.

    So… who’s focused on actually balancing the budget? If less money is supposed to reduce spending, why did Bush push so hard to increase the government debt limit? Yes, I know that rolling up the sleeves and actually spending less than you take in becomes wildly unpopular, but why can’t we raise taxes AND cut spending… The net effect of paying off the debt would be 200 billion a year we no longer have to pay in interest… We need to start rewarding our representatives for making fiscally sound decisions rather than just looking at how much federal money they can route to us and our states.

  6. Dan Says:

    Deamiter, count me as one who doesn’t particularly want to balance the federal budget. Rather, we should insist our government focus on things which will 1) keep us safe , and 2) grow the economy.

    1) Keeping us safe in an unsafe world is the most important job the government has, far more important than spending less than it brings in. I shudder to consider budgetary cutbacks underfunding our ability to protect our boarders simply to acheive a magical mix of revenues and expenditures.

    2)If we borrow $100 and the return on the investment is $150, then we can pay back the $100 plus interest and be better off. That’s why I don’t particularly insist on a balanced budget. If the money the government is borrowing is truly being used to promote growth policies, then we can borrow $100, $1,000,000, or $1,000,000,000,000 and be better off even as we pay it.

    For more on this topic, click on my name for someone who expresses himself a lot better than I do.

  7. Jon Says:

    It may not be technically a “loan”, but with the government already over budget where do you think the money is going to come from? Higher taxes? Government loan? Print the money (which raises inflation)? Take your pick. In the end, it is a loan, and individuals will end up paying more for it in the end.

    As for raising taxes and cutting spending at the same time. That won’t happen. Congress already spends more than we give them. Giving them more will only make them spend more. What we should do is pay Congress with whatever money is left over after each year of spending. Give them some incentive to spend less.

  8. euio Says:

    @glblguy – I am sorry, but this DOES seem like a loan to me. To review your last paragraph:

    “Since it is a 2008 stimulus package, you are getting the money early. The actual amount of your final rebate will be calculated based on your 2008 tax return. If you are due more money than you received in your early rebate payment, than that will be included in your 2008 taxes, if however you received too much, you will not have to pay it back.”

    This looks an awful lot like the government is giving us a loan on our 2008 tax return (that we would normally get in 2009). It is not directly a loan, because you get more than what you would otherwise receive in 2009, you will not have to pay it back. BUT, if you over-pay $1000 dollars in taxes throughout 2008 and get $600 from this stimulus package, you will only get a rebate of $400 in 2009.

    Either I am wrong, in which case I would love a better explanation, or this IS a loan to what our future rebate will be. If that is the case we should all claim as many exemptions as possible, so that we do not overpay our 2008 taxes, and we will be able to keep the money from this stimulus package.

    What do you think?

  9. Peter Says:

    yeah, let’s just lower our taxes to begin with – across the board for everyone. Here’s to lower taxes!

  10. This Mom Says:

    Not sure what we’re going to do to stimulate the economy– we’re using ours as an extra large principal payment on our last debt — my car!

    (Found your blog over at LLNOE and love it!

  11. glblguy Says:

    @euio – That is not my understanding. From my research, this is purely a stimulus with no strings attached (beyond potential long term consequences mentioned above). It would defect the purchase. Remember, not everyone gets a refund…I generally don’t, and if we were expected to to pay this back, people wouldn’t spend it.

    I don’t know the answer, but personally am not worried about that. Anybody else know?

  12. glblguy Says:

    @This Mom – I’ll have an article coming out about the topic of what to do with the rebate next week.

    Glad you found me, and glad you like it!

  13. Lisa Says:

    Hi glbl,

    This is a great summary, thank you.

    With regards to the tax rebate, there is controversy over whether or not this type of approach will actually help the economy. In the 1970′s it actually helped to fueling more inflation.

    The trackback isn’t working on my website, but if you are interested, click on my name. It will bring you to a post of mine from March 1st, entitled “Stagflation: Will We Repeat History?

    Best,
    Lisa

  14. Julie Says:

    During the Great Depression, the government worried a lot about keeping a balanced budget – not putting more money in the economy to help stimulate it. This didn’t work too well!!

  15. Patrick Says:

    Excellent explanation of the stimulus package! You did a much more thorough job than I did! :)

  16. TFB Says:

    The tax rebate technically *is* a loan. It’s just a loan that does not require a payback. Read what you wrote yourself:

    “Since it is a 2008 stimulus package, you are getting the money early. The actual amount of your final rebate will be calculated based on your 2008 tax return. If you are due more money than you received in your early rebate payment, than [sic] that will be included in your 2008 taxes, if however you received too much, you will not have to pay it back.”

    If someone is eligible for the rebate but didn’t receive the rebate for whatever reason, he/she will receive the rebate as a tax refund when he/she files the 2008 tax return. Therefore the rebate, if received, is a loan from the 2008 tax refund.

    Congress passed the law and cut the tax in 2008 by $600 (plus per child, plus phase-out etc.). Consider person A and person B with identical income and tax withholding. Suppose without this stimulus law they both would receive a tax refund of $1,000 on their 2008 tax return. Now person A files a 2007 return and receives the $600 tax rebate. Person A also receives $1,000 tax refund in 2009 after he/she files 2008 tax return. Suppose despite IRS prodding, person B does not file 2007 return. Person B does not receive the rebate in 2008. When person B files his/her 2008 tax return, he/she receives $1,600. Person A received a loan. Person B did not. They are both eligible for the same tax benefit.

  17. glblguy Says:

    @TFB – How is it a loan if you don’t have to pay it back? They are just giving you the money early.

  18. Deamiter Says:

    We don’t have to pay it back? When the government is running hundreds of billions of dollars in the red and they give taxpayers $150 billion, now they’re even further in the red.

    Who do you think will end up paying for government deficits? Our government pays interest on all this money they’re borrowing (largely through treasury bonds) so we’ll end up paying it back with interest either through increased taxes or reduced services (probably both). If it walks like a loan and quacks like a loan…

  19. TFB Says:

    The “don’t have to pay it back” part refers to the fact that if you received more than you are entitled to, you don’t have to pay back the difference. In my examples, person A paid back the loan on the 2008 tax return. Person A receives $1,000 tax refund instead of $1,600 which person B receives. Granted it’s not smaller than what it would be without the tax rebate law, but it is smaller than what it otherwise would be if he/she didn’t receive the rebate.

  20. timmay Says:

    Dan, i am sorry but i strongly disagree with you. (with all due respect) Do you really think the government is trying to keep us safe. They care less about our safety, they only care about themselves and their money. They have us so wrapped up in the mainstream media, Americans have no idea what is happening right in front of our very eyes. It is so crazy how ignorant Americans really are. I just recently spent 6 months in the UK. I was watching the nightly news and they played a clip of George Bush speaking in his puppet like tone of voice. I gotta tell ya, i was completely embarrassed listening to him. I had to leave the room.( i know i am completely off the subject of this page) Awareness is key. Americans must be prepared for what we have in store and what the government has planned, for it is not the safety of American citizens.
    If you are curious as to what i am talking about, do the research, i have one phrase ‘North American Union’ (ever heard of the European union?)

  21. Kristen Says:

    While I understand that it is not technically a loan, from what I understand from reading the information above, it’s deducting it from whatever my refund would have been next year. For example, if I am supposed to get $1000 back next year, but I receive $900 from the economic stimulus plan, then I would only receive $100 back. Is this correct?

  22. glblguy Says:

    Kristen, no it won’t impact your return for next year. You’ll will get the incentive independent of your next years return.

    In your case, you’ll receive $900 this year, and then your normal refund of $1000.00 next year.

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  24. Deonna Mccally Says:

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  25. Jeffrey Says:

    I do not figure out how jobs will be created when quite a few United States businesses are spending their money in China. Take GE by way of example. General Electric’s latest attempts to construct aircraft engines for the Chinese will lead to them passing over their blueprints for the engines they build. A different business, Yum Brands, is getting over sixty percent of its profits from outside America. Until trade agreements change, the downward spiral in jobs is inevitable.

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