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Tax refund will be paid back when we file next year?


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#1 of 12 KeithH

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Posted September 10 2001 - 09:46 AM

Is it true that the tax refunds most Americans received or will receive shortly will be paid back when we file next year? I received a check for $300 from the I.R.S. two weeks ago. Normally, I get a tax refund when I file. Should I expect to get a refund less $300 when I file next year? Rather than a tax break, were the refunds we got this summer given in an attempt to increase consumer spending and spark the economy? If the latter is the case, did the government really believe that refunds of $300-600 would make that big a difference?

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#2 of 12 MickeS

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Posted September 10 2001 - 10:02 AM

No, you will not have to pay it back. This was sort of a retroactive tax cut.

Quote:
Should I expect to get a refund less $300 when I file next year?

No, rather the other way around, if I understand it correctly. Since the tax was cut you'd get $600 back next year, I think...

As for whether it helps the economy or not, I think this is the wrong forum for that debate.

/Mike

[Edited last by MickeS on September 10, 2001 at 05:04 PM]
/Mike

#3 of 12 Bill Catherall

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Posted September 10 2001 - 10:03 AM

The way I understand it, the refund you just got was because the recent decrease in taxes is retroactive. Next year's tax return will reflect the recent tax rate reduction. You're $300 was not from the 2001 tax year. It was from the 2000 tax year had the current tax rate been used to figure your taxes. Does that make sense or am I just confusing the issue?

Basically, we totally overpaid in taxes. We had a bunch of money that was just sitting in Washington that was not part of the budget. So to reduce this waste, we get a lower tax rate and some of the money comes back to us. There are 2 options to use up that surplus: 1) spend more money, 2) give us back some of it and take less from us in the future. I like option 2.

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#4 of 12 MickeS

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Posted September 10 2001 - 10:06 AM

Nevermind.... Posted Image

/Mike

[Edited last by MickeS on September 10, 2001 at 05:07 PM]
/Mike

#5 of 12 Deane Johnson

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Posted September 10 2001 - 11:21 AM

My understanding is that the tax rate for 2001 was reduced, retroactive back to January 1. Your withholding taxes were withheld at the old rate. The refund was to give you back the overage you would have paid in through withholding so far this year under the new lower tax rate.

Had they not mailed out these checks, your refund next April 15 would have been $300 more. In other words, they gave you what would have been a larger than normal refund back early. This was to get the money back into the economy now when it needs it rather than next year.

One thing that might be misleading so some: It's not a gift from the government. It's the extra money you paid in that you didn't need to due to the tax cut being given back to you.

That's my understanding, not necessarily correct.

Deane

#6 of 12 KeithH

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Posted September 10 2001 - 11:23 AM

Bill and Mike, what you said makes sense. I recall hearing a couple months ago that the refunds we got this summer were related to taxes filed for 2000 (i.e., filed by April 15, 2001). However, I've heard some talk around that we will have to pay it back next year along with some speculation that the refunds were given to stimulate the economy.

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#7 of 12 Bill Catherall

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Posted September 10 2001 - 11:26 AM

The tax decrease was probably made retroactive to stimulate the economy, since it obviously could be afforded because of the surplus.

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#8 of 12 BrianB

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Posted September 10 2001 - 11:49 AM

It is /based/ on your filing from last year, ie from the one in April 2001. However, the amount is actually a refund from taxes paid *this year* - the taxcut was retroactive from January 1st 2001. Instead of waiting until the end of the tax year to refund the money, the government refunded it straightaway - you are getting a refund of tax paid from Jan 1st 2001 until June 1st 2001, not last year.

Effectively, thanks to that taxcut we all overpaid by $300 so far this year & got it back straightaway instead of at the end of the year.

The ongoing dispute in the media etc wasn't over paying it now instead of at the end of the year - it was over the taxcut itself.

(edit) Just checked HRBlock.com for this:
Quote:
: I just got a letter from the IRS, saying they're sending me a check. Why are they sending these checks out?
A: In June, 2001, Congress passed and the President signed a new law that reduces tax rates for 2001. In order to get some of the money to taxpayers quickly, the IRS was directed to send out rebate checks to taxpayers who meet certain requirements - along with a letter telling you what your credit would be. You should save the letter and bring it to H&R Block when you have your 2001 tax return prepared.

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[Edited last by BrianB on September 10, 2001 at 06:51 PM]
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#9 of 12 Kevin Coleman

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Posted September 10 2001 - 12:10 PM

You won't have to pay it back this year or next. Just don't expect any SS when you retire.


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#10 of 12 Bill Catherall

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Posted September 10 2001 - 03:34 PM

Thanks Brian, that clears things up.

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Just don't expect any SS when you retire.
I'm not expecting any anyway. This tax cut has nothing to do with it. What you hear is politics as usual..which isn't allowed here...so I'll stop there.

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#11 of 12 Derek Miner

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Posted September 12 2001 - 05:35 AM

My grandmother read an article about how the IRS has been instructed to handle this situation, and she wasn't very happy. She sent me a copy of the article, and I can see where it would upset a lot of people. Personally, I understand the process they decided to go with, and I think it's probably the best way to handle the tax cut.

As was said above, your 2000 tax return status is the BASIS for your relief check, however, the money itself is a refund of money you pay in taxes during 2001.

When you file taxes in 2002, the tax tables will NOT reflect the reduction to 10% of your first $6000/$1200 (depending on your filing status). This is because the check you are getting now covers that reduction for the entire year. It cancels it out.

Essentially, the choice was to give you the 5% difference back now, or figure it in your taxes later. I know people who have opinions on both sides.

Some people I know prefer to let the government hold on to as little extra of their money as possible. They don't like getting large refunds because that would mean the government got to use their money without paying interest.

Others I know prefer the "out of sight, out of mind" feeling, where they know the government is holding too much of their money, but they don't miss it, because it was gone before they got their paycheck in the first place, and it's a pleasant surprise or a "bonus" when the money comes back.

As we know, the government chose to give the money back to taxpayers now instead of later. I know some people would prefer that they just adjusted the tax tables next year to 10%. But consider this...

If you use your "advance" toward a debt with high interest (credit cards with 10%, 15% or 20% interest anyone?), or even if you just put it in a bank account with just the slightest percent interest, you're going to be better off than if you waited until the middle of next year to get this money back.

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#12 of 12 Jake T

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Posted September 12 2001 - 07:29 AM

Quote:
did the government really believe that refunds of $300-600 would make that big a difference?


When you multiply that by the number of taxpayers out there. Yes it is a lot of money.

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