Question or Topic 

How much should I receive for the Newly Enacted 2001 Tax Act "Advance Refund Payment"?

 The Answer

Regarding: Advanced Refunds

Tax Act 2001

Sample Computations

2001 Advance Payment Amount

The 2001 advance payment amount is a maximum of $300 for a single taxpayer, $500 for a head of household, and $600 for a married couple filing a joint return. Most taxpayers will get the full amount as an advance payment this year; some will have it split between this year and next; and some may get all of it as a credit on the 2001 tax return.

This year's advance payment will be five percent of the taxable income shown on the 2000 tax return, subject to the limits described above. This income amount is on:

However, the payment cannot be more than the person's tax liability minus any nonrefundable credits. This amount is on:

If a taxpayer's advance payment is less than the maximum dollar amount for his or her filing status, that person may be able to claim a credit on the 2001 return, up to the difference between the allowable amount and the payment already received.

Example 1. You are single, not able to be claimed as a dependent by anyone, had a 2000 taxable income of $4,000 and claimed no tax credits. You would receive an advance payment of $200 this year - 5 percent of $4,000. If your taxable income for 2001 rises to at least $6,000, you could claim an additional credit of $100 next year ($300 total credit, minus $200 paid in 2001).

Example 2. You and your spouse file jointly and have two children who qualify for the child tax credit. Your 2000 taxable income was $45,000 and your tax liability was $5,907 after subtracting a child tax credit of $1,000. Five percent of $45,000 is $2,250, so your advance payment is limited to the $600 maximum. Since this is less than your tax liability, you will receive your full 2001 credit as an advance payment this year.

Example 3. You are a head of household with taxable income of $9,350 for 2000. You claimed a $500 child tax credit and a $556 child care credit for one qualifying child, leaving you a tax liability of $350. You also claimed an earned income tax credit (EITC) of $957, but this refundable credit does not affect the 2001 credit calculation. Five percent of $9,350 is $468, which is $118 more than your tax liability, so your refund is limited to $350, the amount of your tax liability. If your taxable income for 2001 rises to at least $10,000 and your tax liability rises to at least $500, you would be able to claim an additional credit of $150 on your 2001 return.

The advance payment will be reduced because of any outstanding government debt, such as back taxes, or a student loan, or because of past-due child support obligations. In such a case, the IRS will send the person an explanation of the offset. If the advance payment amount is larger than the debt, the taxpayer will get a check for the difference. If the full advance payment is applied to the debt, the taxpayer will not receive any check.

Qualifications For Receiving the Refund

Single taxpayers who paid Federal income taxes for 2000 could receive up to $300.

Heads of households could get up to $500.

Married couples could receive up to $600.

Anyone who could have been claimed as a dependent on another person's 2000 tax return is not eligible for a check.

 Individuals who have not yet filed a tax return for 2000 will not get any advance payment check until the IRS processes that return.

 Taxpayers who have moved should file a change of address form with the U.S. Postal Service to ensure the checks go to the correct address.

 Only Individuals qualify.

 The person must have had a federal income tax liability for 2000 (i.e. you must have already paid tax for the year 2000).  You had a liability if your tax was greater than the amount of your nonrefundable credits, such as the child tax credit, education credits or childcare credit. Refundable credits - such as the earned income tax credit - are not a factor in determining eligibility or computing the credit or the advance payment.  Those who did not have an income tax liability will not receive an advance payment.

 The person must be a citizen or resident alien.  Nonresident aliens and those who could be claimed, as dependents are not eligible for these advance payments.

 Individuals who did not have an income tax liability for 2000 but who have one for 2001 will be able to claim the tax credit on their 2001 return, provided they are otherwise eligible. Taxpayers whose advance payment is less than the credit amount figured on their 2001 tax return will be able to claim the rest of the credit when they file their 2001 return. Taxpayers whose advance payment is larger than the credit amount figured on the 2001 tax return will not have to pay back any difference.

How Much Money Will I Get?

* Taxable income is the amount shown on the 2000 Form 1040, line 39; Form 1040A, line 25; Form 1040EZ, line 6; or on the TeleFile Tax Record, line K.

** If you filed Form 1040 or Form 1040A, your advance credit payment is limited to your tax liability which is the amount shown on your 2000 Form 1040, line 51, or Form 1040A, line 33.

***The amount of your advance refund may be reduced by past due debts you owe for federal or state taxes or other federal debts.

When Will I Get My Advance Payment?

For married taxpayers who filed a joint return, the first Social Security number on the return will determine the mailing date for the advance payment check.

Taxpayers may check the IRS Web site for the general advance payment mail out schedule. By the end of June, the IRS TeleTax system - at 1-800-829-4477 - will have recorded information on the mail out schedule and the steps for figuring the advance payment amount.

Those who have not yet filed a tax return for 2000 will not get any 2001 advance payment check until the IRS processes the 2000 tax return. The sooner taxpayers file their returns, the sooner they will receive any advance payment to which they are entitled. These taxpayers should not make any changes or adjustments to the 2000 tax return because of an expected advance payment. If they fail to fully pay any balance due to reflect an expected payment, they will owe interest and a late payment penalty on that 2000 balance due.

The law states that Treasury may not send out any advance payments after December. Taxpayers who do not file their 2000 tax returns in time for an advance payment this year may claim a credit, to the extent they qualify for it, on their 2001 tax returns.

Bob Parrish CPA PC, For the firm

Bob Parrish, CPA

Bob Parrish CPA

Solutions

Solutions are dependent upon facts & circumstances, law and the objectives.  These elements vary from one time to another, from one circumstance to another and from person or entity to another.

This page is set with "fill in" boxes so you may print the page and save it for your files.  However, the code does not save any information nor does it collect or save any information on this website.  If you want another to help you with this please call.

You will need to gather:

• Your tax return for the year 2000

Taxpayers whose advance payment is less than the credit amount figured on their 2001 tax return will be able to claim the rest of the credit when they file their 2001 return. Taxpayers whose advance payment is larger than the credit amount figured on the 2001 tax return will not have to pay back any difference.