The new line on this year's tax return, the Rate Reduction Credit, is for taxpayers who are entitled to the 2001 tax rebate but who did not receive the rebate in the summer. Confusion about what to enter on this line has resulted in over 1 million errors so far, according to a news release from the IRS Media Relations Office.
The IRS is warning taxpayers that the errors may result in a delay of refunds, and is cautioning taxpayers to take extra care in filling out this line of their tax return.
The Rate Reduction Credit appears as line 47 on the Form 1040, line 30 of the 1040A, and line 7 of the 1040EZ.
The errors reported by the IRS include:
- Some taxpayers are entering the amount they received last summer on this line. Taxpayers who received the full tax rebate to which they were entitled last summer should leave this line blank.
- Some taxpayers are entering an amount on this line even though they can be claimed as a dependent on someone else's tax return. Taxpayers who can be claimed as a dependent in both 2000 and 2001 are entitled to a rate reduction, but their tax benefit does not go on this line. Instead, these taxpayers should calculate that reduction as part of their 2001 income tax by filling out the "Tax Computation Worksheet for Certain Dependents" that appears in the tax return instructions.
- Some taxpayers who are entitled to receive the Rate Reduction Credit and who should enter an amount on this line are leaving the line blank.
- Some taxpayers who are entitled to receive the Rate Reduction Credit are miscalculating the amount which they should receive and are entering an incorrect amount on this line.
- Some taxpayers are entering the amount of tax rebate they received as income on their tax return, calling the amount either a Tax Refund or Other Income. The Rate Reduction Credit that was received last summer should not be reported on the 2001 tax return as income.
The IRS is advising taxpayers not to file an amended tax return if they realize they made an error in reporting the Rate Reduction Credit. Instead, the IRS is examining all tax returns to make sure this line has been filled out correctly, and is making corrections on the tax returns before processing refunds. The IRS will notify taxpayers of any changes it makes to the tax returns.
Tax returns that have been filed electronically that have errors relating to the Advance Payment amount are being rejected. These taxpayers are cautioned that they should check with the service that filed their tax return and re-file a corrected return if necessary.