Don’t forget the telephone tax credit

I have gotten more emails from clients regarding this tax credit than any tax credit ~ ever. 

What’s so special about this tax credit?  Some history: the telephone tax was born in 1898 as a 1% luxury tax to help finance the Spanish-American War.  This tax grew to 25% during World War II and 10% during the Vietnam War.  It dropped to 2%, then settled at 3% in the 80s.

So, why is the government finally killing the telephone tax after 109 years?  The tax is actually an excise tax on long-distance phone calls, based on the time and distance of the call.  However, cell phones and bundles plans have eliminated the distance from the equation, which opened the door for lawyers to ask why the government was taxing charges that were no longer based on distance.

The government finally pulled the plug on the telephone tax effective August 1, 2006, and promised refunds to consumers for the past three years (the statute of limitations).

This refund will be automatic for most individuals.  It will be a tax credit that you claim on your 2006 tax return, on line 71 of Form 1040.  You can claim a credit based on the number of exemptions you claim on your return, or you can add up the tax you actually paid during that time period.  However the form you’ll need to calculate your own refund is complicated enough that it probably isn’t worth the effort.

Your credit amount if you have one exemption is $30, $40 for two exemptions, $50 for three exemptions, and $60 for four or more exemptions.  This credit is refundable, so you will get it even if you don’t have a tax liability.  In addition, you are not required to itemize your deductions to receive the telephone tax credit.

Tags: telephone tax credit, income taxes