Probably the biggest hoax this year is the "tax rebate." Read here:
Surprise: Tax rebate not a rebate
Checks being mailed are really an advance on 2001
refunds
By David Milstead / Scripps Howard News Service
Wednesday, July 25, 2001
WASHINGTON -- The tax-relief checks that will
start arriving in mailboxes next week should have a
consumer-warning label: "Warning: This check is not a
'rebate' of taxes you already paid. It's an advance on
the refund you'll get when you file next April. "
If it's an advance, you ask, does that mean my
refund in April will be $300 smaller than it would
have been? And if I'm unlucky enough to owe taxes,
does that mean my tax bill will be $300 higher?
The answer to both questions is yes. But you'd
never guess that from the 1040 you'll fill out next
year. It's been designed so that it's nearly
impossible to realize how the 2001 rebate checks
affect your tax preparation in 2002.
"I think people think what they're getting is a
refund of taxes they paid in 2000," said Gary Dudley,
the tax partner-in-charge at Deloitte & Touche's
Denver office. "If they think their taxes were going
to show up lower April 15 (from this change), they're
not."
The "immediate tax relief," as the Internal Revenue
Service calls it, was designed by Congress and the
Bush administration to give taxpayers the benefit of a
2001 tax-rate reduction as soon as possible. Rather
than wait for next April, you'll get the tax cut now.
"Congress intended the credit to take care of the
rate reduction for 2001," said John McGreevy, an
assistant branch chief for administration with the
IRS. "They wanted to get money into people's pockets
for an economic stimulus."
Bear with us for the math on how your check is
calculated: The rate on the first $6,000 of income for
singles and $12,000 for married taxpayers filing
jointly is being cut from 15 percent to 10 percent.
That's why the refund checks range from $300 for
singles ($900 in taxes reduced to $600) and $600 for
marrieds ($1,800 in taxes reduced to $1,200).
But if you were to fill out the tax form next April
using the new rates, you'd get the tax-cut benefits a
second time. That's why the tax tables that will
accompany next year's 1040 will charge you the old 15
percent tax rate, not the new 10 percent rate.
The IRS could have included a line at the end of
the 1040 where you took the amount of the refund check
and reduced your refund by $300 or $600 or, even
worse, added that money to the tax bill you owe. You
won't have to do that, because the amount owed you
pull from the tables at the back of the booklet will
have already done that for you.
"The risk of that (line) approach is that the
adjustment could flip you from a refund to a balance
due, and you really wouldn't believe you received that
money," Dudley said.
But before you direct your anger at the IRS, look
to the folks who designed -- and are taking credit for
-- this advance-refund system: Congress and President
Bush.
"It was not left to our discretion," said Marilyn
Brookens, an IRS attorney in Washington. "It was a
congressional and presidential decision to do it this
way, and we're implementing what we were told to do."
Brookens points to the tax-cutting language in the
report from the House-Senate conference committee that
Bush signed into law this year. The law said that in
2001, the advance refund occurs "in lieu of" the rate
cut from 15 percent to 10 percent.
That statement, Brookens said, meant "if we didn't
do it this way, we would be in trouble with them."
But there are practical reasons, too, Brookens
said: "It's an effort to have as few people as
possible enter a number on the 1040. Every time
there's another computation, it increases the
likelihood of errors.
"It's the way that will be quickest, most effective
and result in the fewest number of errors," she said. |
