The truth behind your tax 'rebate'

By Linda Petty
CNN

WASHINGTON (CNN) -- When is a tax rebate not a rebate? When it isn't funded by last year's taxes that you've already paid.

Although many people -- from the president to journalists -- have called the checks arriving in the mail now tax rebates, they are technically advance payments of a 2001 tax credit, according to the IRS.

To the consumer, it means this is money that you're getting ahead of time that would you have saved on your tax return next April because of the tax cut that was just enacted.

But there is a connection to your past taxes.

If you didn't have any taxable income last year, you won't get a tax credit check this year. And anyone who was declared as a dependent on someone else's tax return last year -- college students, for example, even if they had a little income and paid some taxes on it -- won't get a check.

MORE STORIES CNN Access: Correspondent Brooks Jackson on understanding the 'rebate'

There is still a good chance that many of those people will still be able to benefit from the tax cut. But they'll most likely have to wait until they file their tax returns in April 2002 and either pay less in or get more back in a refund.

The almost 100 million tax credit checks are being sent only to people who had earned income -- taxable income on their year 2000 tax returns they filed by last April 16.

They won't have to protect their $300 to $600 checks from Uncle Sam. The IRS has made it very clear the checks won't count on your taxes.

The nine states that might have taken a tax bite from the checks have passed special legislation to exempt the checks. So all checks are tax free.

All the checks are aimed at getting consumers to spend more and therefore boost the economy.

A recent CNN/USA Today/Gallup poll, however, found that only 17 percent of Americans said they were going to spend the money.

Most economists don't believe that, because what people tell pollsters they're going to do and what they actually end up doing are often two different things.

So while a lot of people say they should save the check money or pay off very expensive credit card debt with it, economists are counting on most people spending the cash and giving the sagging economy a bit of a boost.

-- CNN Correspondent Brooks Jackson contributed to this story.