IRS Instructions for Reporting Rebate Confuse Taxpayers

The 2001 federal individual income tax forms contain a new line this year - "Rate Reduction Credit" - designed to provide those taxpayers who did not receive a rebate last summer, or those who did not receive the entire rebate to which they were entitled, with an opportunity to claim the rebate on this year's tax form. The new item appears as line 47 on the Form 1040, line 30 on the Form 1040A, and line 7 on the Form 1040EZ.

Taxpayers seem to be confused about the new line and the accompanying instructions. IRS Commissioner Charles O. Rossotti said, "Taxpayers should read (the new line's) instructions carefully so they get the proper benefits. Errors can delay processing and we want everyone due a refund to get it as quickly as possible."

IRS rebates were mailed last summer to qualifying taxpayers. The maximum amounts of rebates mailed were:

  • $300 for single taxpayers or taxpayers who are married and file separately
  • $500 for head of household taxpayers
  • $600 for married taxpayers filing jointly

Some taxpayers are entering the amount they received as a rebate on the new tax form line. This is incorrect. If a taxpayer received the proper amount of rebate in the mail, the Rate Reduction Credit line on the tax return should be left blank.

On the other hand, the IRS reports that some taxpayers who didn't receive the rebates to which they were entitled are leaving this new line blank when in fact these taxpayers should enter the amount of rebate to which they were entitled on the Rate Reduction Credit line.

Taxpayers who didn't receive a rebate but who were entitled to receive the payment include taxpayers who filed their 2000 income tax return after the April 16 deadline and taxpayers who moved or changed their name but did not inform the IRS of the change.

Some taxpayers may find the instructions relating to the Rate Reduction Credit confusing. The instructions for the Rate Reduction Credit do not refer to the tax rebate, which was the catch phrase that was used to describe the payments that were made last summer. Instead, the instructions refer to an "advance payment of your 2001 taxes." This description assumes that most taxpayers understand that the tax rebate represented not a return of taxes from 2000 but a refund of overwithheld taxes for the 2001 tax year - an advance payment of the projected 2001 tax refund.

Further Clarification From Don Roberts of the IRS Media Relations Office

Be sure to scroll to the bottom of this page to see the comment to this story added by Don Roberts of the IRS Media Relations office, in which he further clarifies the issue. Our thanks to Mr. Roberts for his input and assistance.

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