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Obligatory disclaimer: I am not a certified anything (at least with respect to taxes), so any and all content and advice contained in this article is for informational use only.

The Telephone Tax Refund is available for the first time on 2006 returns (filed in 2007).1 It is described by the IRS as a "one-time payment available on your 2006 federal income tax return, designed to refund previously collected federal excise taxes on long-distance or bundled service. It is available to anyone who paid such taxes on landline, wireless, or Voice over Internet Protocol (VoIP) service."2 The purposes of this Federal Excise Tax (FET) are interesting in and of themselves,3 but perhaps the more immediately important matter is how to best take advantage of this refund on your personal return. This article explores my experience in so doing.

Telephone Tax Return Options

Those wishing to take advantage of the Telephone Tax Refund have the option of either filling out and filing Form 8913, Credit for Federal Telephone Excise Tax Paid4 or requesting a "standard" refund amount. This standard refund ranges from $30 to $60 based on the number of exemptions claimed on the return: $30 for one exemption, $40 for 2, $50 for 3, and $60 for four or more. The difference between the options is obviously one of convenience; while filling out the form involves looking up phone bills from March of 2003 to July 2006,5 taking the standard refund only requires one line to be filled in on the appropriate 1040 Form.6

Being Lazy Might Cost You

The issue is, then, is filling out the form worth the effort? The short answer is: Probably. Of course, this depends on the individual case, but my experience shows that filling out the form more than quadrupled my refund over the standard $40 I would have received.

So, how do you know if calculating your actual cost is worth it for you before actually doing all of the work? It's easy. Simply pull out a typical bill within the applicable time period (March 2003 through July 2006) and identify all Federal Excise Tax charges. These should be listed as a line item for each phone line usually in a section entitled something like "Government Fees & Taxes."

Next, total all of these Federal Excise Taxes from your sample bill and multiply them by the number of months in the applicable period, which is 41. For example, if your taxes total around $3.15 per month, multiplying this across the 41 month span comes to almost $130. Figure 2 provides a quick way to determine how much taxes would need to be on your average monthly bill to beat out the standard refund. The rest of this article will detail what to do if the potential increase in refund by taking the "form way" seems worth your while.

Gathering Past Bill Information

While it would be great if the data collected from the sample bill could just be filled in for every month, the fact is that the taxed amount very likely changed from month to month depending on a number of factors, including:

• if you added or removed lines,
• if your service provider started the tax after March 2003 or discontinued it before July 2006,
• if you changes service plans,
• or if you were reimbursed for the tax.

In my case, I started with two lines, added two lines (of which for one I was being reimbursed), and noticed that my provider "discontinued billing for the FET on all billing statements issued after June 6th, 2006"7 (although cross-checking this with my bills revealed the last month I was actually charged was May 2006). Additionally, I changed service plans at one point and was informed by Cingular over the phone that I was not charged the tax until January of 2004.

Even with all of these complications, gathering past bill information is much easier now that most phone companies allow access via the Internet. I was able to easily locate bills on my phone provider's site back to July 2005, but when I called the provider for information on bills further back, I met with resistance. You may need to get creative by speaking to managers, calling more than once to get information on a couple of bills each time, etc. It is important to note, however, that a 41 month record of your bills isn't required. As stated by the IRS, "You need not have bills and records covering the entire period, but you must have records adequate to support the refund amount you are requesting."8

In the end, I pieced together what I thought was a very accurate summary of what I paid in Federal Excise Taxes. A simple spreadsheet allowed me to total my costs. Notice that the values for which I was reimbursed are grayed out and not included in the totals, as those should be claimed by the person who reimbursed me.9

Bundled Service and Interest

Most of you are probably wondering why my table shows a total of $75 while I previously claimed a refund of over $160. The reason for this, is two fold: "bundled service" and interest.

Interest is applied to the previously paid taxes at a rate of 3%. Instructions for calculating it is included on the form if you're filling out a hard copy, and it is done automatically if using tax software.10

Bundled service is defined by the IRS as, "local and long-distance service provided under a plan that does not separately list the charge for local service. Bundled service includes, for example, phone plans that provide both local and long-distance service for either a flat monthly fee or a charge that varies with the time for which the service is used."11 Many cell phone and VoIP services qualify, and this results in a near doubling of the refund amount, as seen in the following excerpt from Form 8913 as filled out by TurboTax12 using my information from Table 1.

Uncle Sam Is Tricky

The lesson in all of this is, of course, that taking the "hard way" could result in a refund much larger than the "easy way" offered by the government. So, although Uncle Sam may try his best to tell you all of the data that is behind the standard amount,13 don't let him trick you. You're entitled to make your own little stand for justice by demanding the return of all of the money charged without cause.

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