Taxpayers may be unaware that by choosing the direct deposit option for their 2007 tax refund, they were also choosing to have their Economic Stimulus Payments directly deposited as well. Without IRS relief, taxpayers then might be unable to access those funds without incurring a penalty. However, the IRS has come up with a fix for this “problem.” According to Announcement 2008-44, if the taxpayer withdraws the payment “no later than the time for filing the taxpayer’s income tax return for 2008, plus extensions,” the amount withdrawn will be treated as “neither contributed to nor distributed from the account.” Therefore, according to the IRS, “the amount withdrawn will not be subject to regular federal income tax nor to any additional tax or penalty under the Code.”
The wrinkle in all of this, however, is that as the IRS states in their Announcement, “financial institutions may not be able to distinguish these contributions and distributions from others that may occur.” The IRS states in the Announcement that financial institutions should go ahead and “report the deposit and distribution in the usual manner.” The IRS then promises to take care of this wrinkle in the instructions to Form 1040 next year.
Want to know what that ES payment might be worth if left in your IRA? You can find an assortment of various savings calculators at Choose to Save.org (here) or at this link here if you want to calculate it.
Read more about the Economic Stimulus Payments at the IRS’s Economic Stimulus Payments Information Center.