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Telephone Excise Tax Refund

Phone Tax Credit Available for 2006

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The Telephone Excise Tax Refund is a one-time tax credit that you can claim on your 2006 tax return. It represents a refund of excise taxes paid on long-distance telephone service. The IRS expects to refund about $10 billion in telephone excise taxes.

You can choose between the standard amounts set by the IRS or the actual amount of excise taxes you paid.

Claiming the standard amount is the easiest method, but your actual amount may be higher. You should claim whichever method will result in the largest refund of your telephone excise tax.

Eligibility:

If you paid long-distance excise taxes for service between February 28, 2003, and August 1, 2006, then you are eligible for the excise tax refund.

How to Claim the Refund

Claim the refund directly on your tax return.
  • Form 1040EZ, Line 9.
  • Form 1040A, Line 42.
  • Form 1040, Line 71.
  • Form 1040NR, Line 69.
  • Form 1040EZ-T for individuals who do not need to file a tax return.

Standard Refund Amounts

You can claim a standard refund of the telephone excise tax. The standard amounts are based on the number of personal exemptions you claim on your tax return.
  • 1 exemption: $30
  • 2 exemptions: $40
  • 3 exemptions: $50
  • 4 exemptions or more: $60
Taxpayers have a choice: a standard refund amount between $30 and $60, based on the total number of exemptions claimed on their 2006 tax return, to eliminate the need to locate old phone bills; or they can locate those bills and use the actual amount.

Refund of Actual Amounts Paid

You will need to dig up your telephone bills from March 2003 to July 2006, and report the actual amount of excise tax paid using Form 8913. Attach this form to your tax return.

Special Rules for Self-Employed Individuals

If you file a Schedule C (business income), Schedule E (rental income), or Schedule F (farm income) and you have more than more than $25,000 in gross receipts, then you will be eligible to use a simplified method for calculating your actual expeneses.

Businesses and Nonprofit Organizations

Business taxpayers can either tally up their actual expenses using their phone bills, or can use a simplified method for calculating their telephone tax refund. Businesses attach Form 8913 to their business tax return. Nonprofits attach Form 8913 to Form 990-T.

Simplified Method

Here's the IRS Instructions for calculating the telephone tax refund using the simplified method.
  1. Take the April 2006 phone bill (this is the bill with an April 2006 statement date) and divide the total federal telephone excise tax by the total phone bill (including federal telephone excise taxes) to arrive at the percentage of the bill attributable to federal telephone excise tax. If you have more than one type of service or service provider (land line, fax, cell, local, long distance, bundled, etc.), combine all bills dated in April before making this computation. For this purpose, there is no need to separate the taxes paid on long-distance service from those paid on local service. April is a representative month during which the government was still collecting the excise tax on long-distance service.

  2. Take the September 2006 phone bill and divide the total federal excise tax by the total phone bill to arrive at the percentage of that bill attributable to federal telephone excise tax. The percentage should be lower because the government was only collecting the federal excise tax on local telephone service.

  3. Subtract the September percentage from the April percentage to arrive at the percentage that represents the federal long-distance tax. This is the percentage businesses and tax-exempt organizations will use to figure their refunds (capped as discussed below).

  4. Multiply the long-distance tax percentage by the total phone expenses shown on telephone bills dated after Feb. 28, 2003, and before Aug. 1, 2006. The refund is capped at 2 percent of phone expenses for small businesses (those with 250 or fewer employees) and one percent for large businesses (those with more than 250 employees).
Source: IRS.

History of the Telephone Excise Tax

An excise tax on telephone service was first imposed in 1898 to fund the Spanish-American War. The phone tax has been the subject of numerous lawsuits in recent years. Kay Bell (Don't Mess With Taxes) has written a great article on the history of the telephone tax.
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