Hundreds of thousands of taxpayers could see early-year stimulus checks in their mailboxes and bank accounts — even though the $13,000 limit on Roth IRA contributions for 2008 has already been reached.
More than 500,000 taxpayers who contributed to a Roth IRA account last year may be eligible because they did not claim it on their tax returns, said Warren Rojas, an IRS spokesman. He cautioned that such claims are still pending and that all numbers cited by the agency are preliminary.
The Treasury Department is planning its fourth round of stimulus payments this winter to individuals and couples who made at least $3,000 in taxable income in either 2007 or 2008 (or both). According to the department’s Web site: “To help stimulate consumption and spending, the government will provide up to $600 in stimulus payments to individuals and up to $1,200 for couples filing jointly.”
The fourth installment of these cash bonuses is expected to be about $13 billion and could go out as early as late January or February. The checks would be sent directly to taxpayers who qualified for this year’s first three installments. That means those who received a check from the Internal Revenue Service during the summer months may well receive another one in 2009.
To qualify, you must have been at least 18 years old as of Dec. 31, 2007, and your 2008 adjusted gross income (AGI) can’t have been more than $3,000. You also must have earned money from working — not dividends, capital gains, or other investment income.
“If you earned $3,000 or more in taxable income in 2008 and contributed to your IRA account (not necessarily a Roth), the IRS wants to send you this one-time check,” Rojas said.
When it comes to taxpayers who claim their Roth contributions on their individual tax returns, “it’s basically simple math,” he added. “We’re just taking what they’ve already claimed on their tax return for 2008 and adjusting that number by multiplying it times 1.5.”
If your 2008 AGI was more than $100,000, however, you are not eligible for these stimulus checks because Treasury has set aside most of the money available for the plan for low-income workers. According to the Treasury Web site: “Our estimates suggest that we will pay about $10 billion in fourth-quarter payments to individuals and households with income below $30,000 .”
If you qualify, you must file Form 8888 (see www.irs.gov/pub/irs-pdf/f8888.pdf ) along with your 2008 individual tax return. That means these stimulus checks won’t arrive until late February at the earliest — just as Americans are rushing to complete their tax returns for 2009 and meet a mid-April deadline.
That’s why Amy Gordon, a certified financial planner who is president of Capital Investment Advisors in Bethesda, Md., says many clients may be less than enthusiastic about receiving an unexpected $600 or $1,200 deposit from the federal government.
“I suspect that some clients might be tempted to return the stimulus check because they simply don’t need it,” she said. “They may feel as though the Treasury is trying to redistribute their wealth instead of letting them decide what to do with their money.”
Gordon added: “Keep in mind that if you receive a stimulus payment and choose not to use it — or pay any tax on it — then you will have lessened your withholding and likely owe more at tax time next year. So recouping the $600 or $1,200 could mean an even bigger hit come April 15 .”
As a result, Gordon said the best advice is to consider this stimulus payment “as part of your overall tax picture” and plan accordingly. If you know that you will owe next April, then paying extra taxes twice a year might make sense because it could reduce your tax bill when you file in 2010.
If not, then receiving this fourth stimulus check without planning ahead might end up being more trouble than it’s worth for some taxpayers.