Some taxpayers get another shot at tax relief -- next year
By Kay Bell • Bankrate.com

Your neighbors just got their tax check. Your mom got hers last week.

You, however, didn't get one at all. Or it arrived, but quite a bit smaller than you expected. What's a hard-working taxpayer to do?

Don't give up on Uncle Sam just yet. You may get more tax-relief money. But it won't come before next year, and you'll have to do a bit more math on your 2001 return to recoup it.

Rebate? Credit? What's the difference?
The checks arriving in mailboxes through September are popularly called rebates because they are based on your 2000 taxes. However, the money technically is an advance credit against your 2001 taxes.

When the new tax law took effect in June, it created a 10 percent tax bracket that was retroactive to Jan. 1. That meant a portion of the money you earned during the first half of the year ($6,000 for single filers; $10,000 for heads of households; $12,000 for married couples filing jointly) suddenly became overtaxed.

For many taxpayers, tax on these amounts had already been collected through payroll withholding at the old 15 percent rate. The checks are government payback for this 5 percent excess taxation.

But rather than make taxpayers wait until they file 2001 returns to get the money back, lawmakers decided to refund the cash now. And they determined the easiest way to do this was to base the amount on taxpayers' 2000 tax filings. For most, they reasoned, a taxpayer's 2001 situation would be the same or very close to their prior-year taxes. That's how the checks came to be called rebates.

General calculations, individual taxpayer amounts
Because of the new lowest tax bracket, most single taxpayers will get $300, or 5 percent of 2001's overtaxed $6,000 in earnings. The amount for married couples comes to $600, and $500 for head-of-household filers.

However, as many taxpayers have learned, it's not necessarily that simple.

If you were claimed as a dependent on someone else's return last year, you'll get no check now. Personal exemptions and some other tax credits you used to reduce last year's taxable income also could cut your refund amount.

Did you owe back taxes or some other debt, such as a student loan or child support? The Internal Revenue Service used a part of your check to pay those bills first. That doesn't mean you didn't get the full credit. The money was just more widely dispersed.

"If you owed $400 in back taxes and got $200, you still got the full $600 credit," notes Don Roberts, IRS spokesman in Washington, D.C. "It's just that the tax obligation was paid from the check."

And the rebate checks won't reduce next year's refund or increase your tax bill in April.

"If a taxpayer normally gets $1,000 back and gets a $300 check, that doesn't mean he'll get only a $700 refund next year," says Roberts. Because of the new 10 percent rate, this filer's 2001 tax refund now will be $1,300 -- the expected $1,000 based on the still existing tax brackets and the $300 from the new lower tax rate.

The only difference is in the timing of the refund. Instead of getting the $1,300 next year after submitting a tax return, the filer gets $300 now and the other $1,000 upon filing, notes Roberts.

Getting what's owed you
The tax check calculation method, however, may indeed shortchange some taxpayers. These filers will need to do some extra tax work on 2001 returns to get all their money.

Since the checks were based on 2000 filings, if you paid no income taxes last year, you didn't get a check. But if you are earning more this year, you should be able to claim any tax rate reduction credit when you file your 2001 return.

Similarly, individuals whose filing status has changed should take a closer look at their tax form. For example, Jane was a single taxpayer in 2000 and received a $300 check this summer. But this year, she's eligible to file as head of household. Under the new tax law, her new filing status produces $200 in additional tax relief, an amount she'll need to claim on her 2001 return.

The IRS is adding a new line to next year's 1040EZ, 1040A and 1040 individual tax forms to take care of people such as Jane. Each form also will have a worksheet, so filers can figure just how much of a tax break they deserve.

Taxpayers who got the full $300, $500 or $600 amounts don't need to do anything. If you didn't, it's probably worth a few extra minutes of tax filing time next year to make sure you get all the tax relief you're due.

And if the reverse is true for you, this is one time you're going to love the IRS.

Say you got the full rebate based on your 2000 taxes, but quit your job this year to go back to school. No 2001 income, no tax rate reduction credit, right? Wrong. The IRS says you still get to keep the tax cash.

-- Posted: Aug. 9, 2001