Problem with Stimulus Check/Tax Refund

jockewingMarch 1, 2009

Ok, so I bought TurboTax and prepared my taxes last night. I am single, no dependents. I have almost the exact same income as last year, almost exactly the same withholding. Everything else is virtually identical. I only have mortgage interest and a small amount of charitable contribution as my deductions.

Last year, my refund was about $1,500. This year, turbotax is telling me my refund is only $900. Incidentally, this is EXACTLY equal to the amount of the $600 stimulus check I received last May. I was so annoyed, I was up until 4AM last night reading forums with tons of other people reporting exactly the same thing.

It was explained by several people that Turbotax is programmed to figure that you DID NOT receive the stimulus last year, so that when you enter the amount you received, it reduces the refund amount by that much because otherwise, you would be getting the refund TWICE. But everything the IRS says and even Turbotax on their own screens in the program say the stimulus checks were "FREE" money, are not to be considered income and DO NOT affect your 2008 refund--they are supposedly NOT an advance on your 2008 rebate.

But it seems in practice, that is exactly what is happening. If I tell the program that I did not receive a stimulus check, it tells me my refund will be---$1,500-----almost EXACTLY my refund last year with virtually the exact same earnings and withholdings.

Is there a glitch in TurboTax? Aren't I supposed to get the $1,500 I usually do? I only earned about $1,000 more than last year (earned ~ 40K, so I know I didn't jump up a tax bracket). Why is this happening? I was really counting on that money!!! Should I try to figure them by hand and see what happens?

It seems that thousands are having this problem, and an IRS spokesman even said to enter $0 on the line where it asks how much you received as stimulus, but then the IRS will supposedly NOT accept the return when you try to E-file if you do this. I read several example where people who have gotten just about the same refund for, in some cases, upwards of 20 years, OWE money to the IRS for the first time---the amount they owe equal to their expected refund, LESS the amount of the stimulus check they received last year!

Please, what is going on? I have a BS in Accounting, so I understand basically how tax returns work. The stimulus is supposed to be an advance of a CREDIT. You should not have to reduce this year's usual refund by that amount, but Turbotax is doing this!!


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I've never used TurboTax. I did a preliminary work-through of my 1040 and supporting schedules on paper, and didn't see anywhere that the 2008 economic stimulus payment is to be entered on the return. If it's not taxable, why should it need to be entered? Have I overlooked something or missed that line?

The stimulus payment does affect the 2008 Recovery Rebate Credit, but the RRC only applies to people who didn't already get the stimulus payment, or who received a payment (which was based on the 2007 return) that was less than the full amount and they do now qualify for more due to a change in circumstances for 2008 vs. 2007.

You have a degree in accounting, and are you having an extra $1500 withheld from your pay so you can "as usual" get a refund of it? Why? Wouldn't it be better to adjust your withholding accordingly so you have the money in your paychecks through the year to pay bills, instead of letting the Feds hold it for free?

    Bookmark   March 1, 2009 at 10:48PM
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I know dadoes. It does make more "sense" to have more money throughout the year, but when it comes to paying for big ticket items or stuff that I am waiting to make improvements on, I am much more apt to use the money when I get it in one big chunk. Getting a little more each paycheck doesn't give me that big chunk at once. For instance, I need a new dishwasher. It will be about $400. I will much more likely buy with that bulk $1500 than saving up the little extra in each paycheck to get one. I guess it's a psychological thing.

So can you explain why my normal refund is less by the amount of the stimulus check I received?

    Bookmark   March 2, 2009 at 12:10AM
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jockewing, do a "line by line" comparison of your 2007 return and your 2008 return, if you haven't already done so.

The recovery rebate credit is on line 70 of the 2008 Form 1040. Line 70 on your return should be 0 since you received the maximum amount due a single person with no dependents. There should be a worksheet for line 70. I, also, am not familiar with TurboTax. I know that the software I use requires the entry of the amount of the stimulus check for that worksheet to be calculated correctly.

    Bookmark   March 2, 2009 at 2:30AM
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Maybe Obama and his crew have figured out a sneaky way to raise taxes without most folks knowing about it.

Just kidding!

    Bookmark   March 2, 2009 at 4:27AM
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I used TT Basic on two different returns and did not have the problem you describe.

    Bookmark   March 2, 2009 at 7:57AM
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This year there is such thing as "Recovery Rebate Credit Worksheet" You will fill it out and result shows up on line 70 on your 1040.

The rebate was not an income, but tax credit. If you got it already, then you do not get it twice when filing taxes.

Here is a link that might be useful: IRS worksheet

    Bookmark   March 2, 2009 at 9:08AM
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Thanks for responding guys. I understand that the reason we have to enter what we received is to make sure that we are not due any more money under the "Recovery Rebate Credit". I just don't understand what has occurred in the tax rates that is causing my refund to drop ~$600 from what I received last year with virtually the exact same income and deductions. The only explanation is either a glitch in Turbo Tax, a tax rate change we are not aware of, or I have entered something incorrectly in the system. I guess I will have to compare with last year's line by line as suggested, or figure them by hand to find out what's going on. My problem is I can't figure out how to print out this year's forms from TTax without "completing" the return.

    Bookmark   March 2, 2009 at 9:55AM
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I just don't understand what has occurred in the tax rates that is causing my refund to drop ~$600 from what I received last year with virtually the exact same income and deductions.

Nothing has changed ... you got $600 of your "refund" last year.

    Bookmark   March 2, 2009 at 1:56PM
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shadow, according to the IRS, the $600 I got last year is DEFINITELY NOT supposed to lower my regular refund. I have read that over and over again. It was an advance on a CREDIT we all would have been receiving now in ADDITION to what we would normally be receiving NOW.

    Bookmark   March 2, 2009 at 9:46PM
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Get the forms you need at, and the associated instructions (which has the tax tables and other supporting worksheets). The forms are .pdf files you can fill out on-screen, then save and print if desired, ready to sign and mail. You've already gathered the required numbers to be entered. Shouldn't take more than 30 mins, probably less. Compare the end-result to TurboTax. Is 30 mins of your time worth $600?

    Bookmark   March 3, 2009 at 12:47AM
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Oh, you do NOT want to get me started on the nightmares that can happen when a mailed in return is incorrectly entered in the IRS data entry system.

Please, if you can, efile your return and have your refund direct deposited.

    Bookmark   March 3, 2009 at 7:05AM
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It didn't lower your refund - your refund is still $1500, but they've already paid you $600 of it.

When they talk about "not reducing your refund" what they mean is that by getting $600 early, there would not be a penalty on your total refund.

For example, if your refund should have been $1500, and by accepting the stimulus payment of $600, they reduced the remaining balance to $750 ($150 less than your original total), then that would be a case of them "reducing your refund".

    Bookmark   March 3, 2009 at 8:47AM
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No shadow, that is not what the IRS says. The $600 was supposed to be an EXTRA credit that I would have received on TOP OF my regular refund of $1500. I got that part early. If I did not get the check last year, I would be getting $1500 + 600, or $2,100 now. Otherwise, the stimulus check was in no way "free" money as the IRS and TurboTax say. That would be nothing more than an advance on something I'm already owed.

    Bookmark   March 3, 2009 at 9:21AM
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Hi Jock Ewing,

Being a furriner - I have no useful advice to offer regarding your Incentive funds, tax refund, etc. ... sorry about that.

However - I'm with dadoes ... wouldn't it be a good idea for you to plan to reduce your tax refund to close to $0.00?

Over the years that I've worked as a personal financial advisor, one of my major suggestions to clients and others was that they reduce their income tax refund to $0.00.

Even at low rates of interest ... money in your bank account does develop a small amount of interest, during the year and a quarter to a half or so that some of it would be there.

I'd like to suggest that, during the year while your extra large withholding is being held back and sent to the IRS as an interest-free loan, you check with your bank as to the amount of interest that the extra amount withheld would have earned. Then when you receive your tax refund, suppose you take an equal amount and, in the presence of your family, throw it into the street. Do you figure that they would, on the strength of that act, judge you to be a wise manager of money?

Not only are you losing the small amount of interest (let's call it a "pittance") that that amount of money would earn if you'd taken it and put it into a separate and inviolable bank account ... it would have been available in case of need to deal with a major emergency expense. The IRS wouldn't have been too sympathetic had you, facing such a need, asked them to pay you a portion of that potential refund during that year.

Which relates to another major suggestion that I made to my clients ... that they try to have at least 3 months' income available in easily accessible asset in case of an emergency. With six months', nine months' or a year's amount being built up in case of substantial unexpected need - including, in recent years, a possible extended period of unemployment.

I shared with a number of them the information that I often did not have that on hand myself during my years of recent employment, as I held a "credit" (really "debt") card with, usually, zero or almost zero owing, with full amount paid off monthly prior to due date, plus a line of credit at the bank, usually sitting unused (with no set-up or maintenance fee if unused) which I could draw on to pay off the credit card balance due after use to cover an emergency.

Actually, I recently signed up for another card, with 1.9% interest rate for 9 mos. on transferred balances, to use to purchase stock, should I so choose, as I would have to pay 5.00% currently on my line of credit but can buy the stock using the first card, then transfer the balance. But - the first card will charge interest at regular rate (about 18%) from the date that I draw on it till the date that it moves to the second card.

By the way - I'm 80 and live on less than the income from my three pensions (one governmental with residence requirement, so housewives qualify, a second contributory related to my former income, and a third private contributory one) plus a small annual required amount of withdrawal from a tax-deferred retirement account. That income is much more secure that most employment income, as all that I need do to qualify is ...

... stay topside the grass!

Which makes my pension income almost a guaranteed income (as long as the private carrier and the government stay solvent - and ours is a lot closer to that than yours).

Do yourself a favour, Jock, please - set up a bank acocunt that you promise to leave alone except in case of extreme emergency ... and deposit the amount of withholding overcharge from every paycheque.

With a name such as yours - you may have a drop or two of Scottish blood in your veins ... and you know their reputation for being careful with the use of money.

Good wishes for what's left of winter, the spring - and the rest of the year.

ole joyful

    Bookmark   March 3, 2009 at 2:20PM
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Actually, with the penalties involved with UNDER withholding, I personally avoid getting too close to a zero refund. Seems they get ya worse that way, and the meager interest involved these days makes it a no-brainer.

    Bookmark   March 3, 2009 at 7:29PM
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Last I read, a balance due of up to $1000 does not trigger a penalty, and a higher balance may be OK if the withholding that was done is not less than the previous year's total tax liability. Putting the $1500 into savings isn't so much the point for most people as is applying the money through the year to high-interest credit balances.

2008 tax year I aimed to owe about $175. Ended up being $115.

    Bookmark   March 3, 2009 at 8:45PM
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jockewing I found the following on the web. Hope this helps.


"....Like many Americans, my wife and I received an economic stimulus check last year. We received the full check - $600 each, for a total of $1,200. When I started filling out our tax return with TurboTax I noticed there is a section to enter the amount of your stimulus check. When I did so, the amount of our tax return dropped by the exact amount of our stimulus check. At first I thought I was losing out on money. Then I remembered why it appears this way.

How the Economic Stimulus Check Affects your 2008 Tax Return
The stimulus check was not free money like many people assumed. The stimulus was actually a change to the tax code that was to take effect for the 2008 federal tax season (taxes filed this year).

The new tax code eliminated the 10% tax bracket. The economic stimulus package was a change in the tax code that eliminated the 10% bracket for the first $6,000 of taxable income in 2008. However, the US Government wanted to give its citizens the money up front in the hopes they would go out and spend it to stimulate the economy. In some ways, the stimulus check was like an advance payment for the changes that took affect for the 2008 tax season.

How tax software programs handle the stimulus check. Commercially available tax software such as TurboTax, TaxCut, etc. will fill out your tax return based on the 2008 federal tax code eliminating the 10% tax bracket from the first $6,000 of your income. When you input your information, the tax program automatically gives you that additional $600 (10% of $6,000 for single filers) as part of your tax return. When you input the amount of your economic stimulus check into the tax program you use, the software will reduce your 2008 tax rebate by that amount because you have already received that money. Call it an advance on your tax return if you will...."

    Bookmark   March 6, 2009 at 2:03PM
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From the IRS website titled "basic information on stimulus payments" which I believe is accurate.

"What is it? It's an economic stimulus payment that more than 124 million households will receive. It's not taxable, and it won't reduce your 2007 or 2008 refund or increase the amount you owe when you file your 2008 return. Payments started in May and will continue through the end of 2008."

I believe that the article that logic posted is inaccurate. The rebate checks that were issued in 2000 were due to the creation of a 10% marginal tax rate. Previously, the lowest marginal tax rate was 15%. It appears that the author of the article logic linked is confused.

    Bookmark   March 7, 2009 at 5:27PM
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To clarify my previous post -

In 2000 (at least I think it was 2000) taxpayers received a rebate check due to the creation of a 10% tax bracket mid year. Previously the lowest tax rate was 15%. Employers were already withholding based on the withholding tables that werent calculated with the 10% rate. The government decided to give every one an "early refund" of the difference between the amounts that were previously taxed at 15% but would now be taxed at 10%. The 2000 check was a rebate check.

In 2008, the government issued a stimulus check based on your 2007 tax return. The stimulus check is not taxable. It should not effect your refund unless, based on your 2008 tax return, you qualified for a larger rebate. Reasons for qualifying for a larger rebate include a change in the number of dependents or change in income. The 2008 check was a stimulus check.

Im sorry if I created more confusion with my previous post. I truly believe that the author of the article linked previously has confused the rebate check with the stimulus check. I have verified that the 10 % tax bracket is exists for 2007, 2008 and 2009. The taxable income subject to the 10% rate appears to have been adjusted for inflation and nothing more.

    Bookmark   March 7, 2009 at 6:23PM
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