SPLITTING 2006 FEDERAL INCOME TAX REFUNDS
Taxpayers will have more options and flexibility for choosing how to receive their 2006 federal income tax refunds. In addition to the two previous refund options - direct deposit into on account or receiving a paper check – taxpayers can now opt to split their refunds among two or three checking or savings accounts with U.S. financial institutions, regardless of which form in the 1040 family they file (except Form 1040-EZ-T, Claim for Refund of Federal Telephone Excise Tax) or whether they file electronic or paper returns.
Taxpayers will no longer need to choose between deposits to their checking or savings accounts. They can do both and more. Now taxpayers can choose to send part of their refund to checking and put part of it away into savings accounts for future use.
Examples of savings accounts include: passbook savings, individual development accounts (IDAs), individual retirement arrangements (IRAs), health savings accounts (HSAs) Archer MSAs, and Coverdell education savings accounts. However, some financial institutions will accept direct deposits for some types of accounts, but not others. Taxpayers should contact their financial institutions to ensure they will accept a direct deposit. Taxpayers and preparers should ensure account and routing numbers are accurately entered on returns so funds can be deposited as intended.
This change offers taxpayers new savings opportunities, allowing them to conveniently designate – at the time they file – and send their refunds to any U.S. financial institution that accepts direct deposits if they provide valid routing and account numbers. This change is partly in response to advocacy by IRS partners and the Refunds to Assets: Splitting Refunds and Building Assets Study, which found that one of three taxpayers, who were offered the choice, opted to direct part of their refunds to savings accounts. For many, it was their first saving experience with a financial institution.
The ability to split or allocate direct deposit refunds among multiple accounts will be available to all individual filers by attaching a new Form 8888, Direct Deposit of Refund, to their returns indicating the amounts for each allocation and providing account information. Form 8888 is not required if taxpayers are direct depositing a refund into a single account – the direct deposit line on the Form 1040 can still be used for that purpose.
Split refunds also may help some taxpayers reduce their reliance on refund anticipation loans and keep more of their refunds. Regardless of the taxpayer’s filing method – electronic or paper – direct deposit gives them faster access to their funds than a paper check.
Details on the splitting of tax refunds will be included in all 2006 tax return materials. For more information check the IRS Web site at IRS.gov or call 1-800-829-1040.
TELEPHONE EXCISE TAX REFUND
The Telephone Excise Tax Refund (TETR) is a one-time payment available on 2006 Federal Income Tax Returns. It is designed to refund previously collected long-distance taxes on landline, cell phone or Voice over Internet Protocol (VoIP) service. The Internal Revenue Service recently announced the standard amounts that most long-distance customers can use to figure their telephone tax refund. These amounts, which range from $30 to $60, will enable millions of individual taxpayers to request the telephone tax refund without having to dig through old phone bills.
In general, anyone who paid the long-distance telephone tax will get the refund on their 2006 federal income tax return. This includes individuals, businesses and nonprofit organizations. The 2006 return is usually filed during 2007.
The standard amounts are based on the total number of exemptions claimed on the 2006 federal income tax return. The standard amounts are $30 for a person filing a return with one exemption, $40 for two exemptions, $50 for three exemptions and $60 for four or more exemptions. For example, a married couple filing a joint return with two dependent children (for a total of four exemptions) will be eligible for the maximum standard amount of $60.
To receive the standard amount, eligible taxpayers only need to fill out one additional line on their regular 2006 return. The IRS is creating a special short form (Form 1040EZ-T, Claim for Refund of Federal Telephone Excise Tax) for those who don’t need to file a regular return.
The standard amounts are based on actual telephone usage data, and the standard amount applicable to a family or other household reflects the long-distance phone tax paid by similarly sized families or households. Those who paid the long-distance tax on service billed after Feb. 28, 2003 and before Aug. 1, 2006 are eligible for a refund.
Only individuals can use the standard amounts. Alternatively, individual taxpayers can choose to figure their refund using the actual amount of tax paid. To choose this option, taxpayers can fill out the new Form 8913 and attach it to their regular income tax returns.
Details on requesting the TETR will be included in all 2006 tax return materials. For more information, check the IRS Web site at IRS.gov or call 1-800-829-1040.
ADVICE FOR NEWLYWEDS
It may not be high on the list of wedding planning activities, but there are a few simple steps that can help keep tax issues from interrupting your newly-wedded bliss. There are some practical things to attend to when the honeymoon is over:
Report any name change to the Social Security Administration, so your name and social security number will match when your file your next tax return.
Report any address change to the U.S. Postal Service – they’ll forward your mail and let IRS know. You may also notify the IRS directly by filing Form 8822, Change of Address.
Report any name and address changes to your employer to ensure receipt of your paychecks and Form W-2 during tax season.
Check you withholding status using the automated “IRS Withholding Calculator” available on the “Individuals” page at the IRS.gov Web site.
Consider whether you’ll file joint or separate tax returns.