Congressional Research Service IN11255 (COVID-19 and Direct Payments to Individuals: How Did the 2008 Recovery Rebates Work?)

Summary

CRS Insight IN11255, COVID-19 and Direct Payments to Individuals: How Did the 2008 Recovery Rebates Work?, by Margot L. Crandall-Hollick, Acting Section Research Manager, updated March 19, 2020. It gives an overview of the 2008 recovery rebates as a model for direct cash payments during the COVID-19 pandemic. It explains that H.R. 5140, introduced on January 28, 2008 and enacted as P.L. 110-185, provided rebates that were credits against 2008 income taxes, advanced to households that had filed a return. Each rebate equaled a $300-$600 basic credit amount per individual plus $300 per child, phased out for higher-income taxpayers, and the Insight sets out how the basic credit was calculated.

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                                                                                              INSIGHTi



COVID-19 and Direct Payments to
Individuals: How Did the 2008 Recovery
Rebates Work?

Margot L. Crandall-Hollick
Acting Section Research Manager

Updated March 19, 2020
In response to concerns about an economic slowdown stemming from the COVID-19 pandemic,
policymakers have been considering a broad array of policy options. Some are targeted directly toward
individuals and industries that may be most affected. Others would more broadly seek to stimulate the
economy. Among this latter category of policies, some have proposed direct cash payments sent to
virtually all U.S. households.
In 2008 Congress enacted direct cash payments—the 2008 recovery rebates—that were tax credits
advanced to households that had filed an income tax return. A portion of these credits were refundable and
hence available to taxpayers with little to no income tax liability, including many low-income filers. (For
answers to some common questions about advanced refundable tax credits, see CRS Insight IN11247).
This Insight provides a brief overview of how those 2008 recovery rebates worked.

2008 Recovery Rebates
On January 28, 2008, the House introduced H.R. 5140, which was enacted into law as P.L. 110-185 two
weeks later. The law included 2008 recovery rebates for individuals that were credits against 2008 income
taxes. The recovery rebate for a given taxpayer was equal to (1) a $300-$600 basic credit amount per
individual, plus (2) an additional $300 per-child credit amount. These credit amounts were phased out for
higher-income taxpayers.

Calculating the Credit Amount
The basic credit was equal to the greater of the following:
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        (1) the taxpayer’s net income tax liability up to $600 ($1,200 for married joint filers).
         Net income tax liability was effectively pre-EITC and pre-child tax credit income tax
         liability—or
        (2) $300 ($600 for married joint filers) if the taxpayer had qualifying income. For the
         purposes of the basic credit, qualifying income was either (a) at least $3,000 in total of
         some combination of earned income, social security income, or veterans’ benefits, or (b)
         gross income above the taxpayer’s standard deduction plus a personal exemption (two
         personal exemptions for married joint filers) and $1 of net income tax liability.
The child credit was $300 for each of the taxpayer’s children that qualified for the permanent child tax
credit. Taxpayers could only receive the supplementary child credit if they were eligible to receive the
basic credit.
The total credit—basic credit plus child credit—was phased out at a rate of 5% of adjusted gross income
(AGI) above $75,000 ($150,000 for married joint returns). Higher-income taxpayers not subject to the
phaseout would tend to receive a larger basic credit, while lower-income taxpayers would tend to receive
a smaller basic credit.

Other Provisions of the 2008 Recovery Rebates
        SSN Requirement: Taxpayers had to provide social security numbers (SSN) for
         themselves, their spouse (if married filing jointly), and any child for whom they claimed
         the supplementary child credit. Taxpayers who provided an individual taxpayer
         identification number (ITIN) were ineligible for the credit.
        Nonresident Aliens: The credit was not available to nonresident aliens.
        Territories: The law included a provision requiring the U.S. Treasury to make payments
         to territories (mirror code and non-mirror code) equal to the aggregate amount of credits
         claimed by their residents.
        Interaction with Means-Tested Programs: 2008 recovery rebates were not included in
         income (for the month they were received and the following two months) in determining
         eligibility for, or the amount of, any federally funded public benefit program. (A similar
         provision is now permanent law for all refundable credits.)
        Subject to Offset for Past-Due Debts: All or part of an economic stimulus payment
         could be applied to back taxes or certain other debts of the taxpayer, such as delinquent
         child support and student loans.


Advancing the 2008 Recovery Rebates
The law also included a provision to advance the credit during 2008. Without this advancing provision,
taxpayers would have received the recovery rebates when they filed their 2008 income tax returns in early
2009.
The advanced credit amount was estimated using the same formula as the 2008 recovery rebates, but
based on taxpayers’ 2007 income tax return information. Hence, the IRS evaluated information on
taxpayers’ 2007 returns, determined the credit amount as described above, and began to advance the
recovery rebate by the end of April 2008. Taxpayers that had filed their 2007 tax returns and received a
refund via direct deposit also received the 2008 recovery rebates via direct deposit. (They also generally
received their advanced recovery rebate within two weeks of payments going out.) Otherwise, paper
checks were mailed out to taxpayers using address information collected from their 2007 income tax
Congressional Research Service                                                                             3




returns. In other words, taxpayers had to file a 2007 income tax return in order to receive the recovery
rebate check in 2008.
However, taxpayers that did not receive the advanced credit, perhaps because they did not file a 2007
income tax return, could receive it when they filed their 2008 income tax return at the beginning of 2009.
According to the Treasury Inspector General for Tax Administration (TIGTA), “The IRS issued more than
$96 billion in advanced economic stimulus payments to more than 119 million individuals in Calendar
Year 2008 and approximately $8.5 billion in recovery rebate credits to almost 21 million taxpayers as of
April 17, 2009.”
If taxpayers received a larger advanced credit in 2008 than they were eligible for, they were not required
to repay the excess credit. For example, if a single parent had $600 in net income tax liability and one
qualifying child in 2007, the IRS would advance the taxpayer a $900 recovery rebate ($600 basic credit
plus the $300 supplemental child credit). If, in 2008, the taxpayer’s income tax liability remained the
same, but their child actually ended up living with their ex-spouse—and therefore was not the taxpayer’s
qualifying child for the $300 supplementary child credit in 2008—their actual recovery rebate would have
been $600, a $300 difference. However, under the law, the taxpayer would not need to pay back this
excess amount.




                                       IN11255 · VERSION 2 · UPDATED
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