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i received this in an email. let me know what you think:
FYI - VERY INTERESTING!!!!!
July 21, 2001
Tax checks in the mail -- with a catch From the files of "If it looks too
good
to be true ... ": Practical reasons behind advance-refund system
By David Milstead, Rocky Mountain News Staff Writer
The tax-relief checks that will start arriving in mailboxes next week
don't have a consumer-warning label, so we're happy to provide one.
Warning: This check is not a "rebate" of taxes you already paid. It's an
advance on the refund you'll get when you file next April.
If it's an advance, you ask, does that mean my refund in April will be
$300 smaller than it would have been? And if I'm unlucky enough to owe
taxes, does that mean my tax bill will be $300 higher?
The answer to both questions is yes! But you'd never guess that from the
1040
you'll fill out next year. It's been designed so that it's nearly
impossible to realize how the 2001 rebate checks affect your tax
preparation in 2002. "I think people think what they're getting is a refund
of taxes they paid in 2000," said Gary Dudley, the tax partner-in-charge at
Deloitte & Touche's Denver office. "If they think their taxes were going to
show up lower April 15 (from this change), they're not." The "immediate tax
relief," as the Internal Revenue Service calls it, was
designed by Congress and the Bush administration to give taxpayers the
benefit of a 2001 tax-rate reduction as soon as possible. Rather than wait
for
next April, you'll get the tax cut now. "Congress intended the credit to
take
care of the rate reduction for 2001," said John McGreevy, an assistant
branch
chief for administration with the IRS. "They wanted to get money into
people's
pockets for an economic stimulus."
Bear with us for the math on how your check is calculated: The rate on the
first $6,000 of income for singles and $12,000 for married taxpayers
filing jointly is being cut from 15 percent to 10 percent. That's why the
refund checks range from $300 for singles ($900 in taxes reduced to $600)
and
$600 for marrieds ($1,800 in taxes reduced to $1,200).
But if you were to fill out the tax form next April using the new rates,
you'd get the tax-cut benefits a second time. That's why the tax tables
that will accompany next year's 1040 will charge you the old 15 percent
tax rate, not the new 10 percent rate. The IRS could have simply included a
line at the end of the 1040 where you took the amount of the refund check
and
reduced your refund by $300 or $600 or, even worse, added that money to the
tax bill you owe. But you won't have enter the reduction on the 1040,
because
the amount owed that you pull from the tables at the back of the booklet
will
have already done that for you.
"The risk of that (line) approach is that the adjustment could flip you
from a refund to a balance due, and you really wouldn't believe you
received that money," Dudley said. But before you direct your anger at the
IRS, look to the folks who designed -- and are taking credit for -- this
advance-refund system: Congress and President Bush. "It was not left to our
discretion," said Marilyn Brookens, an IRS attorney in Washington. "It was a
congressional and presidential decision to do it this way, and we're
implementing what we were told to do." Brookens points to the tax-cutting
language in the report from the House-Senate conference committee that Bush
signed into law earlier this year. The law said that in 2001, the advance
refund occurs "in lieu of" the rate cut from 15 percent to 10 percent. That
statement, Brookens said, meant "if we didn't do it this way, we would be in
trouble with them." But there are practical reasons, too, Brookens said:
"It's an effort to have as few people as possible enter a number on the
1040.
Every time there's another computation, it increases the likelihood of
errors.
"It's the way that will be quickest, most effective and result in the
fewest
number of errors," she said.
FYI - VERY INTERESTING!!!!!
July 21, 2001
Tax checks in the mail -- with a catch From the files of "If it looks too
good
to be true ... ": Practical reasons behind advance-refund system
By David Milstead, Rocky Mountain News Staff Writer
The tax-relief checks that will start arriving in mailboxes next week
don't have a consumer-warning label, so we're happy to provide one.
Warning: This check is not a "rebate" of taxes you already paid. It's an
advance on the refund you'll get when you file next April.
If it's an advance, you ask, does that mean my refund in April will be
$300 smaller than it would have been? And if I'm unlucky enough to owe
taxes, does that mean my tax bill will be $300 higher?
The answer to both questions is yes! But you'd never guess that from the
1040
you'll fill out next year. It's been designed so that it's nearly
impossible to realize how the 2001 rebate checks affect your tax
preparation in 2002. "I think people think what they're getting is a refund
of taxes they paid in 2000," said Gary Dudley, the tax partner-in-charge at
Deloitte & Touche's Denver office. "If they think their taxes were going to
show up lower April 15 (from this change), they're not." The "immediate tax
relief," as the Internal Revenue Service calls it, was
designed by Congress and the Bush administration to give taxpayers the
benefit of a 2001 tax-rate reduction as soon as possible. Rather than wait
for
next April, you'll get the tax cut now. "Congress intended the credit to
take
care of the rate reduction for 2001," said John McGreevy, an assistant
branch
chief for administration with the IRS. "They wanted to get money into
people's
pockets for an economic stimulus."
Bear with us for the math on how your check is calculated: The rate on the
first $6,000 of income for singles and $12,000 for married taxpayers
filing jointly is being cut from 15 percent to 10 percent. That's why the
refund checks range from $300 for singles ($900 in taxes reduced to $600)
and
$600 for marrieds ($1,800 in taxes reduced to $1,200).
But if you were to fill out the tax form next April using the new rates,
you'd get the tax-cut benefits a second time. That's why the tax tables
that will accompany next year's 1040 will charge you the old 15 percent
tax rate, not the new 10 percent rate. The IRS could have simply included a
line at the end of the 1040 where you took the amount of the refund check
and
reduced your refund by $300 or $600 or, even worse, added that money to the
tax bill you owe. But you won't have enter the reduction on the 1040,
because
the amount owed that you pull from the tables at the back of the booklet
will
have already done that for you.
"The risk of that (line) approach is that the adjustment could flip you
from a refund to a balance due, and you really wouldn't believe you
received that money," Dudley said. But before you direct your anger at the
IRS, look to the folks who designed -- and are taking credit for -- this
advance-refund system: Congress and President Bush. "It was not left to our
discretion," said Marilyn Brookens, an IRS attorney in Washington. "It was a
congressional and presidential decision to do it this way, and we're
implementing what we were told to do." Brookens points to the tax-cutting
language in the report from the House-Senate conference committee that Bush
signed into law earlier this year. The law said that in 2001, the advance
refund occurs "in lieu of" the rate cut from 15 percent to 10 percent. That
statement, Brookens said, meant "if we didn't do it this way, we would be in
trouble with them." But there are practical reasons, too, Brookens said:
"It's an effort to have as few people as possible enter a number on the
1040.
Every time there's another computation, it increases the likelihood of
errors.
"It's the way that will be quickest, most effective and result in the
fewest
number of errors," she said.
