People start receiving tax rebates

A lot of the money will be used for necessities and to pay down debt, analysts say.

NEW YORK (AP) — Tax rebates have begun dropping into bank accounts, but in this economy, gas and groceries may trump a high-end TV, a fancy dress or a new sofa — making the checks less of an economic jump-start than the government hoped for.

The first direct deposits from the Internal Revenue Service landed in bank accounts Monday, and shoppers were already using the cash to play catch-up on the basics, such as milk and other groceries.

Analysts say the rest will probably be used to pay down debt.

Alicia Flaxman, a stay-at-home mother from Seekonk, Mass., was shopping at a Target store Monday and said she would use some of the rebate for food — cheaper items such as potatoes, not more expensive meat and fish.

“My bills are double,” she said. “I go to the supermarket and I spend $200. I used to spend $120.”

The rest of the money will probably go for summer clothes for her three children, she said.

The IRS aims to make 800,000 payments every day for the first three days of this week. No deposits will be made Thursday, and about 5 million on Friday.

How you receive the rebate depends on how you filed your taxes. Paper checks will go out beginning May 9. The exact timing for both direct deposit and paper checks depends on the last two digits of your Social Security number.

The rebates, which are expected to reach 130 million households, range up to $600 for individuals and $1,200 for married couples, plus $300 per child for eligible parents.

Eric Mossack of Spring Hill, Tenn., had his $1,200 rebate in his checking account Monday and spent some of it on clothing from Gap, Kohl’s and other stores — his first shopping spree in a few months, he said. The rest will go to car payments.

“We paid off something we owed and had a little extra to spend,” said Mossack.

But Bethany Blankley of Manhattan, who works in public relations, said she would immediately put the $600 she received Monday toward paying off credit cards. “The interest rates are high,” she said.

That kind of frugality doesn’t surprise analysts, who say shoppers are earmarking more of their money for groceries, the utility bill or credit card payments. Besides grocery chains, they expect discount retailers such as Wal-Mart Stores Inc. and off-price clothing outlets like T.J. Maxx to benefit from the stimulus checks.

“Consumers are so feeling the pinch that ... they are really being forced to step away from luxury or discretionary purchases,” said Janet Hoffman, managing partner of the North American retail division of Accenture.