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Stimulus payment not taxable, but should be reported on tax return

The Internal Revenue Service is trying stop confusion about the taxability of Economic Stimulus Payments received by many taxpayers in 2008.

"People are starting to do their taxes and are noticing that the 2008 return instructs them to report the stimulus payment they received last year," said IRS spokeswoman Carrie Resch. "Some are mistakenly assuming that means the stimulus payment is taxable."

Resch says that is not the case. The 2008 stimulus payments are not subject to federal taxes.

"Filers are asked to report the amount of Economic Stimulus Payment they received in 2008 to determine eligibility for the new Recovery Rebate Credit, a sort of 'second chance' at getting a stimulus payment," Resch said.

Taxpayers who did not receive an Economic Stimulus Payment in 2008, or did not receive the full amount, may be eligible for a Recovery Rebate Credit of up to $600 per individual or $1,200 per married couple filing jointly.

However, the new credit generally is reduced by the amount of any stimulus payment already received.

Last year's Economic Stimulus Payments were based on 2007 tax return information, while the Recovery Rebate Credit will be based on 2008 return information. Since many individual taxpayer situations may change from year to year, some people who were not eligible last year will be eligible now.

Following are some factors that may affect eligibility for the Recovery Rebate Credit.

Income change: Some people may have received less than the full Economic Stimulus Payment in 2008 ($600 for single filers or $1,200 for married filers) because their qualifying or gross incomes were either too high or too low. A change in income could make a filer eligible for more of the credit in 2009.

Addition of a child: Filers could get an additional $300 for the birth or adoption of a child in 2008.

Social Security and veterans' benefits recipients: If a retiree or veteran did not receive at least $3,000 in qualifying benefits in 2007 but did collect at least that amount in 2008, he or she may be eligible.

No longer a dependent: Individuals who were claimed or could be claimed as a dependent on someone else's tax return in 2007, but who cannot be claimed as a dependent on someone else's return in 2008, may now be eligible.

Social Security Number: Individuals who did not have a valid Social Security Number in 2007 but received one in 2008 may now be eligible.

Two online tools will be available soon on the Recovery Rebate Credit Calculator will help taxpayers figure the amount they should claim on their 2008 tax return; and How Much Was My 2008 Stimulus Payment? will help taxpayers determine the amount of stimulus payment they received.

For more information about the Recovery Rebate Credit or other new tax breaks, visit