What effect will the rebates (and the Recovery Rebate credit) have on the federal tax subtraction on the Oregon return?
Oregon allows taxpayers to reduce their taxable income by the amount of their current year’s federal tax liability (up to $5,600). The tax rebates and Recovery Rebate credit (line 70, Form 1040; line 42, Form 1040A; line 9, Form 1040EZ) represent a reduction in your 2008 federal income tax liability. The rebates and credits must be taken into account when you figure your 2008 federal tax subtraction because it may cause a change in your 2008 Oregon federal tax subtraction. Example 1: Ed and Kathy receive a federal rebate of $2,100 in May 2008. Ed and Kathy receive $600 each and also receive $300 for each of their 3 qualifying children. In March 2009, they file their 2008 federal return and have a $5,000 federal tax liability. When figuring their federal tax subtraction on their 2008 Oregon return, Ed and Kathy will be required to reduce the subtraction by the rebates they received during the summer of 2008. Ed and Kathy calculate their federal tax subtraction as follows: 1. Federal tax
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