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WHAT TO DO WITH YOUR STIMULUS ACT REBATE CHECK

Consumer spending, the engine that powers the US economy, is set for a jumpstart in early May, thanks to the Economic Stimulus Act of 2008. That's when the IRS begins mailing checks to most taxpayers — up to $600 for single filers and $1,200 for married couples filing a joint return. There's an additional $300 for each dependent child younger than 17.

WHAT YOU'LL GET

You'll qualify for a stimulus payment if the adjusted gross income (AG1) on your 2007 federal income tax return is $75, 000 or less and you're single, you file as head of household, or you're married but file separate returns. If you file jointly, the AGI cap is $150,000.

The stimulus payment is phased out gradually for higher incomes. It disappears altogether if you're single, have no children under 17, and your AGI is $87,000 or higher. For couples filing jointly with the comparable cap is $174,000. The AGI cut-off is higher, though, if you have qualifying children.

If you earned at least $3,000 or had combined income of that amount from working, Social Security, or qualifying veterans' benefits, you're eligible for $300 whether or not you owed any income tax. It's probably smart to file a 2007 return even if no tax is due to ensure you're on the IRS radar to receive your check.

Finally, if you're single and your tax bill for 2007 was more than $300 but less than $600, or you're a couple filing jointly with a tax bill of more than $600 but less than $1,200, your check will be equal to the amount of tax you owed.

WHAT THE FEDS WANT

Your stimulus check isn't taxable, so you don't have to report it on next year's return. In fact, the amount is actually a prepayment of a tax-year 2008 rebate. And what the government wants you to do is spend it, just as soon as you get it, to put more money into the economy to prevent a recession — an economic slowdown that results in increased unemployment and — or to soften its blow.

The Stimulus Act includes other provisions similarly designed to give the economy a boost, such as tax breaks for businesses to encourage spending. There's also a temporary, one-year increase in the size of mortgages that can be insured by the Federal Housing Administration (FHA) or purchased by either Fannie Mae or Freddie Mac, the quasi-government corporations that provide mortgage money to banks and other lenders by buying up their qualifying loans.

The former may not have much of an impact on you, unless you're a small business owner. But the higher ceilings on mortgages may help you find a mortgage or refinance an existing one. That could be a real plus.

TO SPEND (OR NOT)

When your check arrives, you'll have to decide if spending it is the right choice for you. There are some alternatives that may actually be better for your economic health, if not necessarily the country's:

• Pay off high-interest debt, especially credit card balances. Recent reductions in the prime rate haven't brought down the cost of consumer credit. In fact those interest rates have been going up, increasing the cost of your credit purchases.
• Put the money in your IRA. If $600 compounds at an annual rate of 8% for 25 years, you'll have $4,100. If it's a Roth IRA, no income tax will be due on your earnings.
• Put the money in an education savings account (ESA). If your beneficiary is a year old and you deposit $1,200 compounding at annual rate of 8%, he or she will have $4,440 to spend on tuition or other costs at 18.
• Add the money to your emergency fund. It's smart to have three to six months savings set aside for unexpected expenses. That's especially true in recessionary times.

Disclaimer: This information is provided with the understanding that the authors and publishers are not engaged in rendering financial, accounting or legal advice, and they assume no legal responsibility for the completeness or accuracy of the contents. Some charts and graphs have been edited for illustrative purposes. The text is based on information available at time of publication. Readers should consult a financial professional about their own situation before acting on any information.