Refund for phone tax can be tricky
Only a few weeks into the tax-filing season, the Internal Revenue Service says consumer returns are already riddled with errors as the result of a new and tricky telephone-tax refund.
It is a one-time tax credit that aims to refund a 3% federal levy that consumers have paid on their phone bills for years.
The tax was rescinded last summer, and the IRS is giving back the amounts consumers paid over the last three years.
Virtually anyone who has had a phone, either a cell or land line, during that period qualifies for the tax break. For most of us, it means an extra $30 to $60.
But about a third of those eligible aren’t seeking a refund, the agency said. Other taxpayers are claiming it twice, some are claiming outrageous amounts, and still more fail to fill in the proper blanks.
The IRS says it is investigating abuses, such as individuals claiming phone-tax refunds that exceed their annual income.
But even simple errors can delay refunds and win the taxpayer the joy of an IRS audit.
“We encourage taxpayers to take a few minutes and review the details of the telephone-tax refund,” IRS Commissioner Mark W. Everson said in a statement. “A little extra time will reduce the chance for a mistake.”
Theoretically, the refund should be easy to claim. Unlike some other new and revived tax breaks, it actually appears on the 1040 tax form. It’s listed on Line 71.
There are two ways to claim it.
The easy way is to use the IRS safe harbor. That gives single filers a $30 credit; those with two exemptions -- a filer and a dependent -- $40; $50 for those with three exemptions; and $60 for families of four or more.
Those who choose this method match their family size to the appropriate amount and plug that number into Line 71 of the 1040. (It’s Line 42 on the 1040A and Line 9 on the 1040EZ).
However, individuals who had large long-distance bills over this time frame might want to go the tougher but potentially more lucrative route.
That requires taxpayers to collect 41 months of phone bills and add up the total amount of federal excise tax paid. Both land lines and cellphone bills qualify during the period from Feb. 28, 2003, to August 2006.
There are two tricks to this.
First, some phone companies lump several taxes together on their bills, so you may have to call to find out what portion of your “federal tax” relates to the eliminated excise tax.
Second, you would be required to fill out Form 8913 and send it in with your 1040. The form is ponderous, asking for specific tax amounts to be broken into three-month chronological segments. But it’s not difficult.
For those with significant bills, gathering the phone bills and filing out the form can be well worth the trouble. Consider, for example, a single filer who spends $100 a month on cell and long-distance services. He could take the $30 safe harbor credit or calculate the real cost, which is likely to be $123 -- a $93 difference.
It’s worth noting that even those who don’t need to file tax returns should consider claiming the telephone refund. Virtually everyone with a phone is due some cash back, the IRS notes.
The agency has a special form for those who don’t need to file returns but want to claim a refund of the telephone tax. It’s the 1040EZ-T. It can be downloaded from the IRS website.
Experts believe there are a fair number of modest-income seniors in this group because elderly couples with as much as $18,900 in gross income are not required to file returns. For those under age 65, singles earning less than $8,450 and married couples earning less than $16,900 don’t need to file.
The IRS says the 1040EZ-T should be used only by those who don’t fill out a 1040. Filling out both could “delay any refund for months and result in a phone call or letter from the IRS.”
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Kathy M. Kristof welcomes your comments. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com. For previous columns, visit latimes.com/kristof.
