The Ins and Outs of the Tax Refund
Is your check from Uncle Sam in the mail?
Not yet, but millions of checks will be sent this summer to individual taxpayers as a result of the tax law President Bush is scheduled to sign today.
As with most government programs, this one has its quirks. Some taxpayers who don’t qualify for a refund will get one. Others who are entitled to a refund won’t get a check--they’ll have to wait until next year to see the benefits of the Bush tax cut.
Wondering whether--or when--you’ll get a check? Here’s a guide to how the massive refund program will work.
Question: Who gets a refund?
Answer: If you paid federal income tax in 2000--or owed federal income tax before accounting for the earned income tax credit--you are due a check.
These checks are the result of a new 10% income tax bracket, which applies to the first $6,000 in income for singles, $10,000 for heads of households and $12,000 for married couples filing jointly. That rate cut is retroactive to the beginning of 2001, so the government is giving you the 5% difference between the old 15% rate and the new 10% tax rate by way of a rebate check.
Although the checks technically are an advance refund of tax overpayments that you’re sure to make this year--given the higher tax rates that were in effect before the tax cut was passed last month--the checks are based on last year’s tax rolls.
That means some people who retired or lost their jobs this year will get refunds they didn’t earn, thanks to taxable income they reported in 2000. But former students, homemakers and others who reported little or no income in 2000 may not get checks because they didn’t make enough money last year to qualify.
Q: How much will I receive?
A: The amount of your check should equal the lesser of 5% of your 2000 taxable income or $300 if you’re single; $500 if you file as a head of household; or $600 if you’re married and file a joint tax return.
The IRS estimates that about 95 million of the nation’s roughly 125 million taxpayers will qualify.
Q: How about an example?
A: Let’s say you’re single and earned $12,000 last year. After subtracting the standard deduction and personal exemptions in effect at that time, you had taxable income of $4,800. You’d get 5% of that, or $240. If you earned $20,000 and had taxable income of $12,800, you’d get $300. That’s because 5% of your taxable income would amount to $640, but you get the lesser of that, or $300, based on your single filing status.
Q: Who is not eligible to get a refund check?
A: Individuals who were claimed as dependents in 2000, such as students who are working but being largely supported by their parents; nonresident aliens--people who may work in the United States but aren’t permanent residents; and those who paid no income tax last year, before accounting for the earned income tax credit.
Q: Is there any other reason why I might not get a refund check?
A: Yes. If you owe back taxes, are in default on a student loan or are behind in your child support payments, the federal government can subtract your past-due obligation from your check. If this happens, you should get a letter from the government, which will explain the discrepancy.
Q: What if I paid no tax solely because of the earned income tax credit? Would I get a refund?
A: Probably. Pull out a copy of your 2000 return and look at line 51--your taxable income after all nonrefundable tax credits. If the number on that line is greater than zero, you get a refund, according to the IRS. If it is zero or negative, you’ll be among the roughly one-quarter of taxpayers who are left out of the government’s rebate program because you paid no tax in 2000.
Q: If this is a rebate of 2001 taxes, why is it based on my 2000 tax return?
A: Congress was eager to give people some cash to spend, which will presumably boost the economy. So lawmakers had to use the most recent taxpayer information they had available, and that’s 2000 tax returns.
Q: What if I did not have earned income last year, but I do this year? Is there a way to get a refund based on my 2001 income?
A: Remember that everyone who is entitled to a refund will get something, somehow. In this case, you’ll get the benefit of the tax rate reduction, but not through a rebate check. You have two options when it comes to claiming your money: You can wait until you file your 2001 tax return, at which point your tax bill will be reduced. Or you can try to get the money by reducing your tax withholding.
If you decide to reduce your withholding, you’ll need to fill out a form with your employer to reduce the amount of income tax that’s taken out of each paycheck. Your employee benefits representative can tell you how. That will give you more spending money--in the neighborhood of $20 to $40 a paycheck--because you’re paying less federal income tax.
Q: What if I had taxable income last year, but I won’t this year? Will I have to pay back the refund money?
A: No. The law specifically says you won’t have to give back any money--even if the government pays you more than you’re entitled to.
Q: When can I expect to get a check?
A: The IRS will start sending checks in mid-July and continue through September. There are two factors that determine when you’ll get your check: your Social Security number and whether or not you’ve filed your 2000 tax return.
If you’ve filed a return, your check will be sent based on the last two digits of your Social Security number, with the lowest numbers getting the first checks.
If you’ve filed a joint return, the refund timing will depend on the last two numbers of the Social Security number that’s listed first on your tax return.
Q: What if I haven’t filed a return yet?
A: Get cracking. Although individuals with extensions have until Aug. 15 to file their returns, you can always file sooner. And the sooner you file, the quicker you get your check.
Q: What do I do if I haven’t received a check by October?
A: Unless you moved and failed to provide the post office with a change of address form, you should receive a check by the first week in October--at the latest. If you haven’t, call the IRS at (800) TAX-1040.
