Clarifying tax rebate confusion

Dear Liz: I’m confused about the upcoming tax rebate. In some articles the rebate is described as an advance on next year’s refund. In others, experts say the rebate won’t affect my refund. Which is correct?

Answer: Well, both. That may seem contradictory, but remember we’re talking about tax law.

To generate the money for the rebate checks, Congress created a special 2008 tax credit for most taxpayers. Normally, you’d have to wait until you filed your 2008 tax return next spring to get this money. But Congress wants you to spend the money sooner to stimulate the economy, so the Internal Revenue Service will start sending the checks in May.

You’ll have to account for the check you receive when you do your taxes next year, but the rebate won’t reduce the refund you would have otherwise gotten if Congress hadn’t acted to create the credit.

If, when you do your taxes next year, it turns out your actual credit is larger than the check you received, you can claim the excess when you submit that tax return. If it turns out you got a bigger check than you deserved, however, you won’t have to pay back the extra money.

The rebate check in most cases will equal the tax liability on your 2007 return (the one you file by April 15 this year) up to a maximum of $600 per taxpayer and $300 per qualifying child. The rebate is phased out for higher-income folks, meaning that singles with adjusted gross incomes of more than $87,000 and married joint filers with more than $174,000 won’t receive anything.

Certain people will receive rebates even if they don’t owe any 2007 taxes. Those people include low-income workers and those who receive Social Security benefits or veterans’ disability compensation, pension or survivors’ benefits from the Veterans Benefits Administration. These folks are eligible for a $300 payment, or $600 on a joint return, if they had at least $3,000 of qualifying income in 2007.

Everybody who wants a rebate check needs to file a tax return for 2007, the IRS says, even if they earn too little to owe taxes. Although some tax authorities speculated the IRS would work with the Social Security and Veterans Benefits administrations to identify eligible beneficiaries, the IRS recently clarified that filing 2007 returns is required to get a check.

Save for college through 529 plans

Dear Liz: I have two young daughters, ages 9 months and 2 years. I don’t have a lot of money but I’m trying to figure out what is the best way to save for their college or whatever they want to do when they’re at least 18. Can you please tell me what is the best way to go about this and how can I do it without paying taxes on the money?

Answer: If you “don’t have a lot of money,” then you needn’t worry too much about taxes. What you really need to worry about is making sure the money you save doesn’t hurt your children’s ability to qualify for financial aid.

That means you probably should avoid custodial accounts such as Uniform Transfers to Minors Act accounts, or UTMAs, and Uniform Gift to Minors Act accounts, or UGMAs. The money in these accounts legally belongs to the child and reduces financial aid, dollar for dollar.

The best solution for many families is state-run 529 college savings plans. The money in these plans is tax-free when used for qualifying college expenses. More important, the account is treated as your asset, not your children’s, so it receives better treatment in financial aid formulas.

And unlike custodial accounts, you retain control of the money. If one child decides not to go to college, you can transfer her account to the other child or use it for your own education. If you decide to give the girls the money for purposes other than college, you would pay a relatively light federal tax penalty of 10% on any gains.

You can find out more about 529 plans at or by reading Joseph F. Hurley’s book, “The Best Way to Save for College 2007: A Complete Guide to 529 Plans.”

Do Not Call list to stay in effect

Dear Liz: I heard that most of the people who signed up for the federal Do Not Call list will have to do so again because their registrations expire next year. Is that true?

Answer: It would have been true had Congress not acted recently to make the registry permanent. So relax, your dinner hour will still be safe from most telemarketing calls.

Liz Pulliam Weston is the author of “Easy Money: How to Simplify Your Finances and Get What You Want Out of Life.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the “Contact Liz” form at www.asklizweston.com. Distributed by No More Red Inc.