New Tax Credit for Phone Customers
by: Iowa Legal Aid
If you had long distance phone service in the past 3 years, you can get a tax credit on your 2006 tax return. The IRS used to make long distance phone companies charge customers an excise tax. This tax showed up on your phone bill. In August of 2006 the courts decided that the excise tax was not OK. They ordered the IRS to stop collecting the tax AND to refund money to phone customers.
On your 2006 federal income tax returns (filed in 2007), you can claim a credit for the amount of the excise tax plus interest on long-distance telephone service billed after February 29, 2003. This is a one-time refundable credit. That means that if you get a tax refund it will be added on to your refund amount. If you owe taxes you can subtract it from what you owe. This federal excise credit is available to individuals and businesses. This information only deals with the rules for individuals. Rules for businesses are different.
HOW DO I FIGURE OUT HOW MUCH THE CREDIT IS WORTH?
Taxpayers have two choices:
- Claim a standard amount, OR
- Look at all your phone bills from this time period and file a claim for the actual amount paid.
If you do not have your phone bills from February 2003 to August 2006, just claim the standard amount. Standard amounts depend on how you file your 2006 income tax return. The number of exemptions you claim sets the amount of the credit. You claim 1 exemption for yourself, 1for a spouse if you are married and filing together, and 1 for each dependent. The amounts of the credit are:
- $30 - 1 exemption
- $40 - 2 exemptions
- $50 - 3 exemptions
- $60 - 4 or more exemptions
For example:
If you are single and claim yourself as an exemption, but have no dependents, you can claim a $30 credit. If you are married, filing a joint return and have 2 dependent children (a total of 4 exemptions) you can claim a $60 credit.
CAN I GET THE CREDIT?
Phone customers who had long-distance service anytime between February 28, 2003 and August 1, 2006 may be able to get the credit if they had the following services.
- Standard land-line telephone with long-distance service (like your house phone)
- Cell phone service
- Internet long-distance calling plans (Voice-over Internet Protocol service)
It is estimated that 15 million households had phone service in recent years but did not file federal tax returns. Most of these households were low-income. Half were headed by someone over age 65.
HOW DO I GET THE CREDIT?
You can file for the credit on your 2006 federal tax return form. The 1040, 1040A or 1040EZ tax forms all have instructions for this credit. If you do not have to file a tax return you can still get this credit. There is a new Form 1040EZ-T, Claim for Refund of Telephone Excise Tax.
If you need to file a tax return, do not use the 1040EZ-T. All taxpayers who file form 1040 will claim the credit on line 71. All taxpayers who use 1040-A will claim the credit on line 42. Taxpayers who want to use their actual telephone bills to calculate the credit will use Form 8913. If your telephone company has already refunded the taxes paid to you, you cannot claim a refund from the IRS.
GET FREE HELP TO DO YOUR TAXES
Many customers who do not file tax returns may not know about this credit or may need help filing for it. If you are low-income and have questions about this credit, contact Iowa Legal Aid. For the telephone number of the office serving your county, call (800) 532-1275.
Low-income and disabled persons, and senior citizens can get their tax forms done for Free. Volunteer Income Tax Assistance (VITA) sites are open all over Iowa during tax season. Information about opening dates of free tax preparation sites should be available the third week of January. Most sites offer computer filing. If you call 211 in most areas in Iowa, you will be able to find the site nearest you. If 211 does not have this information, you can call the Iowa Legal Aid at (800) 272-0008.
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