What is the telephone tax refund?

The telephone tax refund is 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 services. It is available to anyone who paid such taxes on landline, wireless, or Voice over Internet Protocol (VoIP) service.

Why is the government refunding these taxes?

Several recent federal court decisions have held that the tax does not apply to long-distance service as it is billed today. The IRS is following these decisions and refunding the portion of the tax charged on long-distance calls. The IRS is also refunding taxes collected on telephone service under plans that do not differentiate between long distance and local calls including bundled service.

The telephone tax continues to apply to local-only service, and the IRS is not refunding taxes charged on local-only service.

The IRS will refund to you the taxes on long-distance or bundled service billed to you for the period after Feb. 28, 2003 and before Aug. 1, 2006. Taxpayers should request this refund when they file their 2006 tax returns.

Who is eligible to request the telephone tax refund?

In general, any individual, business or nonprofit organization that paid the tax for long distance or bundled service billed after Feb. 28, 2003 and before Aug. 1, 2006 is eligible to request the refund.

What is a refund-eligible bundled service?

Bundled service is local and long distance service provided under a single plan that does not state the charge for the local telephone service separately from other services. Bundled service plans include, for example, Voice over Internet Protocol (VoIP) service, and landline and wireless (cellular) service plans that provide both local and long distance service for either a flat monthly fee or a charge that varies only with the elapsed transmission time for which the service is used. Telecommunications companies provide bundled service for both landlines and wireless (cellular) service. If VoIP service provides both local and long distance service and the charges are not separately stated, such service is bundled service.

The method of sending or receiving a call, such as on a landline telephone, wireless (cellular), or some other method, does not affect whether a service is local-only or bundled.

How do I get the telephone tax refund?

In general, anyone who paid the telephone tax on their long-distance or bundled service may be eligible to request the refund on their 2006 federal income tax return. This includes individuals, businesses and nonprofit organizations. The 2006 return is usually filed during 2007.

The IRS is making it easier for individual taxpayers by offering a standard refund amount between $30 and $60, so that these taxpayers don’t need to gather old phone bills. Taxpayers who choose the standard amount will only need to fill out one line on their tax returns. The standard amount is based on actual telephone usage data and the amount applicable to a family or other household reflects the taxes paid on long-distance or bundled phone service by similarly sized families or households. Using this amount may be the easiest way for taxpayers to get their refunds and avoid gathering 41 months of old phone records.

What is the standard amount?

Individual taxpayers can take a standard amount from $30 to $60 based on the number of exemptions claimed on their tax return.  For those claiming:

• one exemption, the standard refund amount is $30
• two exemptions, the standard refund amount is $40
• three exemptions, the standard refund amount is $50
• four exemptions or more, the standard refund amount is $60

The instructions to the 2006 1040 tax forms will provide more information on how to determine the correct number of exemptions. (Because the term “exemptions” does not appear on Form 1040EZ, people who fill out this form should follow the instructions carefully.)

The standard amount is based on actual telephone usage data, and the amount applicable to a family or other household reflects taxes paid on long-distance or bundled service by similarly sized families or households. Using this amount may be the easiest way for taxpayers to get their refund and avoid gathering 41 months of old phone records.

How did the government come up with the standard amounts?

Telephone industry and IRS data were used to determine the refundable standard amounts. Telephone industry data showed that spending on long distance correlated directly with the number of persons in a household; therefore, a scaled refund structure was selected based on the number of exemptions claimed on the tax return.

What forms do I file to request the refund?

For many individual taxpayers who want to take the standard amount, there are no additional forms to file, and you only need to fill out one additional line on your regular income-tax return.

Individuals choosing the standard amount can simply fill in the amount on Form 1040, 1040A, 1040NR or 1040EZ. People who don’t need to file a return can use a new, simple form (Form 1040EZ-T) to choose the standard amount.

Taking the standard amount is optional. It is also the easiest way to get a refund. A married couple filing a joint return with two dependant children, for example, will be eligible for the maximum standard amount of $60.

Individuals who decide not to use the standard amount must figure their refund using the actual amount of tax they paid. To choose this option, taxpayers can fill out Form 8913 and attach it to their regular income-tax returns.

The standard amount is not available to businesses and nonprofits. Accordingly, businesses and nonprofits must fill out Form 8913 and base their refund requests on the actual amount of tax they paid. Businesses should attach this form to the income-tax returns they normally file — Form 1120, 1120S, 1065 or 1041. Nonprofits, including churches, charities and other tax-exempt organizations, should attach it to Form 990-T.

Alternatively, businesses and tax-exempts can review their bills for 2 months and use a special formula to figure the refund. For more information, see Telephone Tax Refunds: Questions and Answers for Businesses and Tax-Exempt Organizations.  

Can I e-file to get this refund?

Yes. Virtually anyone who files an individual return qualifies for electronic filing, and the telephone tax refund is one of many tax benefits that can be reported on an e-filed return. Whether you file electronically or on paper, you can get your refund even faster by having it deposited directly into your checking or savings account.

I don’t have to file an income-tax return. How do I get the telephone tax refund?

For those people who do not otherwise have to file a tax return, there is a new simple form (1040EZ-T) that can be used to get this refund. Beginning in mid-January, this form can also be filed electronically for free via the Free File link this Web site.

If you choose the standard amount, all you need to do is fill out this simple form using the number of exemptions you are eligible to claim. For example, a married couple with two dependent children (for a total of four exemptions) will be eligible for the maximum standard amount of $60.

If you decide not to use the standard amount, you must figure your refund using the actual amount of tax paid. To choose this option, you must fill out an additional form (Form 8913) and attach it to Form 1040EZ-T.

Do Internet long-distance plans qualify for the refund?

Yes. If you paid the federal excise tax on your long-distance Internet plan, you can request the telephone tax refund. Internet long distance plans include broadband VoIP long-distance plans.

Why do I only get a refund for the past few years?

Under the applicable statute of limitations in the Internal Revenue Code, the IRS is generally not permitted to refund taxes that were paid more than three years before the date on which the refund program was announced. Accordingly, the telephone tax refund is available for long-distance taxes billed after Feb. 28, 2003, and before Aug. 1, 2006.

How do I determine how much federal excise tax I have paid on my long-distance service?

Taxpayers who choose to base their refund requests on the actual amount of tax paid should review their phone bills since Feb. 28, 2003. Taxes paid on local-only service are not eligible for the refund. In general, federal excise taxes paid on other types of service qualify. Federal access charges and state or local taxes and charges are not eligible for the refund.

The standard amount is based on actual telephone usage data, and the amount applicable to a family or other household reflects the phone tax on long-distance or bundled service paid by similarly sized families or households. Using this amount may be the easiest way for taxpayers to get their refund and avoid gathering 41 months of old phone records.

What if I don’t know whether I paid this tax?

Your phone service providers were required to include the federal excise tax on your monthly telephone bills. So if you had long distance or bundled service and received a monthly bill from your phone service provider, and you paid the bill including the tax amounts, then you should be eligible to request the refund. 

Where do I go for more information?

Instructions for requesting this refund will be included with your tax forms and on this Web site. Therefore, most people will not need to call the IRS. If you decide to figure the actual amount of the refund rather than the standard refund, you will need copies of your phone bills. Telephone companies have already provided their customers with copies of their bills during the original billing periods and may charge for replacement copies of past bills, if they are available. Before contacting your telephone company, should you need to obtain replacement copies of past bills, you may want to check the company’s Web site.

What do I have to do now?

In most cases, nothing. Taxpayers will request this refund on their 2006 return. Accordingly, the IRS will begin accepting refund requests in January 2007.

The only decision you have to make is whether to use the standard amount or to request the amount of tax you actually paid. To take the standard amount, you don’t need to do anything now. You can figure it when you fill out your 2006 return.

If you are considering using the actual expense method, you may want to start gathering your phone bills since Feb. 28, 2003. As with any other line item on your return, starting early and keeping good records always makes the tax-preparation process easier.

Will the IRS pay interest on the refunded telephone tax?

Yes. The standard amount includes interest For those basing their request on the actual amount of tax paid, the instructions for Form 8913 explain how to figure the interest amount.

How do I decide if it’s better for me to use the actual or take the standard amount?

You can use whichever method gives you the larger refund. The standard amount is based on actual telephone usage data and the amount applicable to a family or other household reflects the tax on long-distance or bundled service paid by similarly sized families or households. Using this amount may be the easiest way for taxpayers to get their refund and avoid gathering 41 months of old phone records.

Example A: If a couple filing jointly had $20 in local service and $15 in long distance service each month over the 41 month period, their telephone tax refund based on their actual billing would be $15/month X 0.03 X 41 months =  $18.45 (not including interest) in comparison to the standard refund amount of $40. The telephone tax paid on the local portion of their service is not eligible for the refund.

Example B: If a sole proprietor had $20 in local service, $50 in long distance per month and $150 in cellular phone charges for each month over the 41 month period, the telephone tax refund based on actual billing would be $200/month (50 +150) X 0.03 X 41 months = $246.00, in comparison to the standard refund amount of $30 (which would cover both personal and business expenses). The telephone tax paid on the local portion of their service is not eligible for the refund. The sole proprietor determines that they would benefit from requesting the actual amount of tax paid versus using the standard refund amount of $30. The taxpayer must maintain supporting documentation for their tax records.

Do I have to itemize to request this refund?

No. Because this is a refund of taxes previously paid, it does not matter whether you itemize or take the standard deduction.

Will I get a separate check?

No. The telephone tax refund will be treated as a one-time payment on your 2006 return. Accordingly, it will reduce the amount you owe on your return or increase the amount of your refund.
 
What is the total amount the government expects to refund?

Economists at the U.S. Department of the Treasury estimate the amount refunded to individuals will be about $10 billion.