Created on November 1, 2008 - 3:00pm

Should You Consider the Recovery Rebate Credit in Your Gross-Up Calculations?

Per the IRS, the Economic Stimulus Payment is not taxable for federal income tax purposes. Since this payment is not taxable, it has no impact on the grossup calculation.

However, it is possible that moving expenses could have an impact on the Economic Stimulus Payment amount received by a transferee. This is due to the fact that the Economic Stimulus Payment amount begins to phase-out when Adjusted Gross Income (AGI) exceeds $75,000 ($150,000 if married filing jointly). Accordingly, since moving expenses can significantly increase a transferee’s AGI, a transferee could exceed the phase-out threshold due to the inclusion of moving expenses in their AGI.

In an attempt to mitigate the impact of a one-time increase to AGI on a taxpayer’s Economic Stimulus Payment amount, the IRS has added a Recovery Rebate Credit to the 2008 Form 1040. The Recovery Rebate Credit allows a taxpayer to recalculate the amount of their Economic Stimulus Payment using their 2008 AGI. This amount is then compared to the amount of the Economic Stimulus Payment received in 2008 (which was calculated using their 2007 AGI). If the amount of the recalculated Economic Stimulus Payment exceeds the actual Economic Stimulus Payment amount received in 2008, the difference is allowed as a Recovery Rebate Credit on the taxpayer’s 2008 Form 1040. If the recalculated amount is less than the actual amount received, the IRS will not require a pay back of the difference.

Chris Munzke, CPA CRP