Rate-reduction credit creates tax-filing confusion

CURT ANDERSON, THE ASSOCIATED PRESS

Originally published Sunday, April 14, 2002

WASHINGTON -- The only new line on this year's 1040 tax form is causing confusion among many taxpayers, prompting the IRS to issue some guidance about how to treat last year's rebate checks.

The new line is for people who didn't receive a check, or got less than the full amount, to claim a credit of up to $300 for individuals, $500 for heads of households or $600 for married couples filing jointly. Returns received by the Internal Revenue Service indicate it is the single most frequent error people have been making.

Some people who should have claimed a credit left it blank. Others who got a full rebate check last year are putting that amount on their tax returns when they shouldn't. Some mistakenly think they have to give some money back.

"Errors can delay processing, and we want everyone due a refund to get it as quickly as possible," IRS Commissioner Charles Rossotti said.

The 86 million rebate checks mailed out last year stemmed from the new 10 percent income tax rate enacted as part of the 10-year, $1.35 trillion tax cut. The checks represented an advance payment for 2001, but eligibility was based on 2000 tax returns, and some people were left out.

The Rate Reduction Credit was created so that people who had sufficient taxable income in 2001 but didn't get a check could still benefit from the new, lower 10 percent tax rate. The rate applies to the first $6,000 of a single taxpayer's income, $10,000 for a head of household and $12,000 for a married couple.

The credit is found on line 47 of the 1040 form, line 30 of the 1040A form and line 7 of the 1040EZ form.

Anyone who got a check in the full amount for their filing status should not claim the credit, the IRS says.

People who got no check in 2001, or got less than the full amount, could be entitled to claim some or all of the credit. The 1040 form instructions include a Rate Reduction Credit worksheet to figure this out.

Some people who were claimed as dependents in 2000, but not in 2001, could be eligible for tax rate reduction as well if they had sufficient income. They should complete the "Tax Computation Worksheet for Certain Dependents," again found in the tax return instructions, to find out.

There's one key catch: People who owed back taxes or other federal debts, or had past-due child support, may have had these amounts deducted by the government from their rebate checks. They can't now claim the credit to recover the full amount.

Some people who received checks based on their 2000 tax returns may not have had sufficient incomes in 2001 to actually qualify, but the IRS says not to worry: The tax law says they don't have to repay any excess amount.

Help with filing

IRS office

The South Sound Internal Revenue Service office is at 402 Legion Way S.E. in downtown Olympia. The office is on the third floor and is open 8 a.m. to 4:30 p.m. weekdays.

Staff at the Olympia office will help you prepare 1040EZ and 1040A forms, and the following 1040 forms: Schedule A/B, Schedule EIC, Schedule H, Schedule R, Form 2441 (child-care credit) and Form 8812 (additional child tax credit).

The office staff will not prepare Schedule C and D forms or partnership or corporate returns.

AARP Tax-Aide

Taxpayers can receive free tax help from more than 70 trained volunteers with the AARP Tax-Aide program. The program focuses on retirees, low-income people, singles, single parents, disabled people and non-English-speaking taxpayers.

Volunteers will be available today at the following locations:

- The Olympia Center, 222 N. Columbia St., Olympia. 10 a.m. to 2 p.m.

- Panorama City, 150 Circle Drive Parkway S.W., Lacey. 1 to 4 p.m.

- Tumwater Timberland Regional Library, 7023 New Market St. S.W., Tumwater. 1 to 6 p.m.

- Yelm Moose Lodge, 1117 Yelm Ave. W., Yelm. 10 a.m. to 2 p.m. Tuesdays and Wednesdays.

On the Web

- IRS: www.irs.gov

- National Taxpayers Union: www.ntu.org

- The AARP also has a Web site at www.aarp.org/taxaide

Extensions

Taxpayers can receive an automatic extension by filing Form 4868 before the April 15 deadline. This year, the IRS has made it easier to get an extra four months -- you can also get the extension by telephone or computer.

While the extension is automatic, the payment of taxes due is not part of the extension.

When you file Form 4868, you must estimate and pay the taxes you owe for 2001.

- By phone: 888-796-1074

- Web site: www.irs.gov

On the Web:

- Filing 2001 tax returns: seven-part series on taxes

The Olympian Copyright 2002

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