How big could your tax rebate be?

Example: Mr. and Mrs. Jones have five children. After taking available credits and deductions, their 2007 taxable income was $95,000, leaving them with a federal income tax liability of just over $16,600. Under the proposal, they would get the full base amount of $1,200. They would also qualify for a children's bonus of $1,500, bringing their total check to $2,700.

Example: Mr. and Mrs. Senior are retired. As a result of their investment income, the couple paid $4,000 in federal income taxes in 2007, meaning they would get the full base amount of $1,200. They have no dependent children, so there is no children's bonus.

Example: Mr. and Mrs. Ipo have one child. They were able to retire young but still collect dividends and capital gains from a business they sold a few years ago. The couple paid $19,000 in federal income taxes on that income in 2007. They would therefore qualify for the base amount of $1,200. They would also qualify for a children's bonus of $300 because they paid at least $1 of federal income tax in 2007 (even though they had no earned income), for a total check of $1,500.

Here's how the rebates are being figured at this point: The rebates are tied to a reduction of the 10% bracket from 10% to zero for the first $6,000 of taxable income in 2008, Luscombe said.

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"I guess they need some legal basis to give a rebate check, so that's what they came up with," he said. "That would be tied to the 2008 return. That's similar to 2001, so basically you would reflect the rebate check as sort of a prepayment on your 2008 return."

The rebate is not taxable at the federal level, and it's unlikely the states would tax it, though that's not entirely clear at this point. "I would think ... the states wouldn't try to tax it," Luscombe said, but recently "they've been decoupling from a lot of this federal silliness" -- so it's unclear what might happen at the state level.

This article was reported and written by Andrea Coombes for MarketWatch.

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