May 12, 2008

Economic Stimulus Payment: What To Do?

On an individual’s 2007 tax return, the individual had the right to elect that any tax refund be automatically contributed to a tax-favored account such as a health savings account, an IRA or a §529 education plan, among others. If an individual elected this option, any economic stimulus payment due the individual will, likewise, be made to the tax-favored account.

Because some taxpayers did not understand the implication of making this election, the IRS has indicated in Announcement 2008-44 that an amount less than or equal to the tax stimulus payment amount can be withdrawn from the tax-favored account without tax or penalty. The account custodian will still issue the relevant reporting document (1099), and the taxpayer will reflect on his/her 2008 tax return that the distribution was, in fact, an economic stimulus payment. The distribution can be made any time up to the tax filing due date for the 2008 tax year.


The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

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