Editor's note: As a special feature for March,
offers an ongoing series on everything you need to know about taxes. Today is part nine.
The IRS is giving you a one-time offer of free money. Seriously. All you need to do to qualify is pay your taxes and have owned a phone.
The Telephone Excise Tax Refund is a refund of the 3% federal excise tax you paid for your phone's long-distance service from Feb. 28, 2003, to Aug. 1, 2006. The refund is available to anyone who paid such taxes on landline, wireless or voice-over-Internet-protocol (VoIP) service, and as I mentioned, is good for this year only.
Why is the IRS giving us this refund? Because of the war. The Spanish-American War, that is. Back in 1898, to help fund the fighting in the Caribbean, the U.S. government placed a federal excise tax on phone service. Of course, back then, only the wealthiest Americans owned one of the new-fangled voice-over-copper-wire devices.
But in August, the government stopped collecting this long-distance excise tax after several federal court decisions held that the tax does not apply to long-distance service as it is billed today. But because we all were erroneously charged, a one-time refund of any tax collected during those previous 41 months also was authorized.
Now before we talk about how you can claim this refund, know this: The average refund ranges from $30 to $60, depending on your exemptions. So this refund is not going to cover your next family vacation. Sorry to burst your bubble. Still, that $60 is your money, so get it back (you can always buy another phone with it, if you want).
There are two ways you can claim this refund. The easiest way is to claim the "standard amount," which is based on your tax exemptions. So if you have one exemption, your refund would be $30, two exemptions, $40, and so on up to $60. You would report your refund on line 71 of your Form 1040 -- Individual Income Tax Return.
The other option is to calculate the refund yourself. To do that you would have to go find all your phone bills from that period and tally the actual amount of taxes paid based upon your telephone records. You would then have to file Form 8913 -- Credit for Federal Telephone Excise Tax Paid -- and attach it to your tax return.
The IRS actually believes most people will be better off just taking the standard deduction than slogging through their phone bills, says Mark Luscombe, a principal federal tax analyst with CCH, a provider of tax and business law information.
That's probably because people already are calculating the refund incorrectly. The IRS has found that some early tax-filers are trying to request a refund of the entire amount of their phone bills rather than just the tax. And some very brazen individuals have filed their returns with refunds that exceed their actual income.
So be sure to check the
IRS Web site for more info, and do it right. Otherwise, you're just opening yourself up to an audit and I, for one, would rather eat dirt than deal with that.
Next in the tax series: Don't Blow Your Refund Before You Get It
tax series previously featured:
- Don't Fear the Auditor
- A Reason to Procrastinate
- Booyah Breakdown: Taxes for Traders
- Don't You Miss a Tax Credit or Deduction
- Booyah Breakdown: Taxes for Traders
- How to Choose the Right Tax Software
- AMT:Little Tax Of Horrors
- Last Chance to File for Refunds -- for 2003
- Booyah Breakdown: Taxes for Traders II
Tracy Byrnes is an award-winning writer specializing in tax and accounting issues. As a freelancer, she has written columns for wsj.com and the New York Post and her work has appeared in SmartMoney and on CBS MarketWatch. Prior to freelancing, she spent four years as a senior writer for TheStreet.com. Before that, she was an accountant with Ernst & Young. She has a B.A. in English and economics from Lehigh University and an M.B.A. in accounting from Rutgers University. Byrnes appreciates your feedback;
to send her an email.