UPDATE 1-U.S. to start economic stimulus payments May 2

WASHINGTON, March 17 (Reuters) - The U.S. Internal Revenue Service said on Monday it would begin sending the first of more than 130 million economic stimulus payments on May 2 and expects to complete the first round of payments by early July.

The IRS said the payments -- tax rebates of about $600 for most middle-income individuals and $1,200 for middle-income couples -- will be sent in the order of the last two digits of the taxpayer's Social Security number. Taxpayers must file a 2007 tax return to receive a payment.

The payments are part of a $152 billion economic stimulus package signed into law last month by President George W. Bush to try to stave off recession amid a deepening housing and credit market crisis.

The IRS said it expects to make about 34 million payment within the first three weeks after it starts distribution on May 2.

Choosing the direct deposit option for their normal federal tax refund will speed the stimulus payments to taxpayers. Those who who choose this option on their tax returns can expect to receive their payments between May 2 and May 16 provided their returns were received and processed by April 15.

For taxpayers who did not choose direct deposit on their tax return but whose returns were processed by April 15, paper checks will be put in the mail starting on May 16, with initial mailings completed by around July 11.

Because the payments phase out above incomes of $75,000 for individuals and $150,000 for couples, the IRS has created an online payment calculator to help taxpayers determine if they are eligible, at www.irs.gov/app/espc/. (Reporting by David Lawder; Editing by Neil Stempleman)