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by Few may know, but there is a new way to increase your refund when submitting your 2006 return: the "Telephone Tax Refund." Essentially, the federal government realized it was improperly taxing Americans on their long distance phone service and now it's giving those taxes back. The difficulty, however, is determining how much to give back. The government claims it has taken the work out of it for you by offering a standard refund amount based on the number of exemptions claimed, but this article describes how taking the alternative route of actually calculating the amount paid can significantly increase your refund. Read on if you like money ... or if you just don't like being "tricked by Uncle Sam" (as the article puts it).
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According to the IRS, many taxpayers are not even claiming the standard deduction let alone going to the extra work to itemize it. From a recent article:
More than a third of early tax return filers are not requesting the one-time telephone tax refund entitling them to at least $30, the Internal Revenue Service said.
The agency said that in addition to more than one-third of early filers using Forms 1040, 1040A and others not requesting the refund, lower income people using Form 1040EZ-T are failing to show a refund amount on Line 1a.
Others, it said, are requesting refunds based on the entire amount of their phone bills, rather than the 3 percent tax on long-distance and bundled service, or requesting amounts in the hundreds or thousands of dollars.
It advised taxpayers to file electronically because electronic-filing software flags often-overlooked tax breaks. The agency also reminded taxpayers that the break does not apply to the total phone bill or taxes paid on local-only service. Taxpayers are urged to stay away from tax preparers claiming they can get hundreds of dollars or more back.
It's interesting to note that they suggest avoiding tax preparers that can get hundreds back. Based on your analysis, I'd say it is possible that many people could get hundreds back.
I received the following inquiry via email:
I was reading over your article and in attempt to understand the difference between the "long distance" column and "bundle" column, I used all your numbers to do the calculations. My main confusion is about the long distance + bundle options. If I have a cell phone national plan, then I would think it is technically a bundle package. But your article makes it sound like both a long distance and bundle option, which effectively doubles my refund.
I don't exactly understand how it all works, either. As I went through the TurboTax steps, it asked me to fill in what I had paid in FET and then asked if the payments had gone towards bundled service. As a cell phone national plan is specifically identified as qualifying as a "bundled" service, I selected yes. Then, I scanned the resulting documentation which TurboTax automatically generates and found the form to be as you see it in Figure 3.
And besides that main confusion above, I don't understand your form 8913. I understand column C, it is the total based off all non gray cells with respect to their groups. What I do not understand is column b. It seems as if initially, all the columns ($3, 5, 5, 5, and so on) are from just your phone line #1. But once it hits $11, it seems to be factoring in phone line #4, which you grayed out because you were reimbursed. What happened there?
I noticed the discrepancy as well, and double-checked my numbers to be sure I hadn't included anything extra. I hadn't, and so the only explanation I could come up with is the way the system rounds the refund amounts. Additionally, I only input one set of values, not one set for "long distance" and one set for "bundled" service. Somehow, though, TurboTax came up with different numbers in columns B and C - again, the only explanation for which I could determine being rounding (i.e., maybe the rounding rules are different for the two columns, or maybe only a percentage of column B applies to column C?).
My main concern is if I can claim my cell phone national plan on both column b and c, or just c. It seems a little strange to claim both because I was just charged the tax once.
You're correct it should only be claimed once if it was only paid once. However, there seems to be some nuance in the system that allows bundled service to go in both columns, effectively bumping up your refund.
If you are doing the calculations by hand, I suggest giving the instructions a careful look to see if you can determine what step leads to this. If you can't identify one and your potential tax increase would outweigh the cost of something like TurboTax, then I suggest using it.
0 Nerd-Its
Time Burden - 14 hours?
MyInvestmentBlog.com points out that the IRS has estimated the time burden to fill out Form 8913 to claim the extra taxes as 13 hours and 37 minutes. Brandon, how long do you estimate that it took to gather the records and fill out the form? Of course you also wrote an article about it so it may be difficult for you to separate that time out. Anyone else claim the extra taxes? How long did it take you?
This comment has 2 replies.
0 Nerd-Its
How to find the correct amount to claim
One common mistake people make is adding up the Federal tax as well as the Federal fees on their bills. The fees are NOT being refunded. For more information on what to look for in the bills, see http://consumernotes.blogspot.com/.
It is definitely worth taking a few minutes to look through old bills to add the tax up. Instead of the $30 standard claim, I got $170.
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Refund amount vs value of time involved by cpeel :: NR4 :: Show
Thanks for the assessment -- I was wondering how much it would come out to for some people. Out of curiosity I grabbed one of my paper statements (yup, I have 7 years worth of them) during the time the tax was in effect and guesstimated my calculated refund amount was going to be less than the standard value, so I'm opting for the standard one.
On the flip side, it could be said that the people who own enough bundles or lines to rack up the larger-than-standard refund probably make enough that their time to calculate the correct value isn't worth the final refund. That limit would obviously vary pending on the person and the person's evaluation of what their time is worth.
Granted, I of all people know that sometimes the principle of the issue is worth more than any dollar value of my time :)