The Tax Relief Checks Sent to U.S. Taxpayers in 2001 Are Not Really Refunds–Truth!
Summary of eRumor:
An article from the Rocky Mountain News in Colorado has gotten wide circulation on the Internet. The writer, David Milstead, warns that the tax “refund” everybody thought they were receiving as a part of a tax reform measure from Congress and President Bush is not a refund. It’s actually money from taxes that will be paid for tax year 2001.
According to the Internal Revenue Service, this is true.
Here is a step-by-step explanation.
1. Congress passed, and President Bush signed, “The Economic Growth and Tax Relief Reconciliation Act of 2001.”
2. Among other things, it lowered taxes on your income after December 31,2000. That means it applies to money you earned beginning in 2001 and does not apply to money you earned in 2000.
3. Ordinarily, you would wait until 2001 is over to compute your taxes and pay them by April 15, 2002. That would mean that if Congress gave you a tax break for your 2001 income, you would expect to benefit from it at that time.
4. The law passed by Congress, however, gives us an “advance payment” on our 2001 taxes even before the year is over and long before the time that we would normally be computing and paying those taxes.
5. The problem, however, is that since you are receiving the advance payment for a tax year that is not yet completed, how does the IRS know how much your payment should be? The answer is that the IRS is using your year 2000 tax figures to give them a clue. They are asking, “If the lower tax rate had been in effect at that time, how much less tax would you have had to pay?” That’s one of the reasons why not every person is receiving a check. If you didn’t pay any taxes for 2000, you don’t get an advance check. You may ask, “But that doesn’t seem fair because even though I didn’t pay any taxes for 2000, I know I will be for 2001, so I should get a break too.” You are right and when you compute your taxes for 2001, that can be adjusted.
7. When tax time does come around in April, 2002, you may look at the tax tables and notice that the tax rates don’t seem to be lower. That’s because the advance payment check represented your tax relief for 2001. You already got it. If Congress gave the advance payment and lowered the tax tables too, that would be a double tax cut.