Phone Tax Refunds Available – How to get yours!
You may have heard that the IRS will no longer collect the excise tax on long-distance services and bundled services (charges that combine long-distance and local telephone services, e.g., Voice over Internet Protocol (VoIP) services and prepaid calling cards).
Phone companies, cellular carriers and other telecommunications providers must stop charging you the tax with respect to these services that are billed to you after July 31, 2006.
In addition, the IRS has issued procedures under which taxpayers may claim a refund for federal telephone excise tax paid on above-described long-distance and bundled services billed after February 28, 2003 and before August 1, 2006. This claim for refund must be made on your 2006 income tax return. To claim the refund, you will have to calculate and document the amount of excise tax you actually paid on the services over the relevant period.
To request a refund, businesses (including sole proprietors, corporations and partnerships) and tax-exempt organizations must complete Form 8913; Credit for Federal Telephone Excise Tax Paid. To complete this form, businesses and tax-exempt organizations may determine the actual amount of refundable long-distance telephone excise taxes they paid for the 41 months, from March 2003 through July 2006, or use the formula to figure their refunds. Businesses should attach Form 8913 to their regular 2006 income tax returns. Tax-exempt organizations must attach it to Form 990-T.
Businesses and tax-exempt organizations can calculate their refund amounts by comparing two telephone bills from this year to determine the percentage of their telephone expenses attributable to the long-distance excise tax. The bills they should use are the bills with a statement date in April 2006 and in September 2006. They must first compute the telephone tax as a percentage of their April 2006 telephone bills (which included the excise tax for both local and long-distance service) and their September 2006 telephone bills (which only included the tax on local service). The difference between these two percentages should then be applied to the quarterly or annual telephone expenses to determine the amount of their refunds.
The refund is capped at 2% of the total telephone expenses for businesses and tax-exempt organizations with 250 or fewer employees, which covers more than 99% of all businesses. The refund is capped at 1% for those with more than 250 employees. Most organizations in this category typically are able to calculate the actual amount they paid in long-distance excise tax. However, the formula provides a more limited, but simpler, approach for those large employers who wish to use it.
For example, if a business has an April 2006 telephone bill of $1,000, which includes federal telephone excise tax of $28, the tax percentage is 2.8%. If the September 2006 bill is $1,100 including federal telephone excise tax of $16.50, the tax percentage is 1.5%. The business’ longdistance excise tax percentage is 1.3% (2.8% for April minus 1.5% for September). The business multiplies 1.3% by its total telephone expenses over the 41-month period to arrive at the amount of its refund. If this business had more than 250 employees, its refund would be limited to 1% of its total telephone expenses for the period. If the business had 250 or fewer employees, the 2% cap would apply and would not limit the amount of the refund.
The IRS developed the formula after receiving public input and discussing the issue with business organizations, the Small Business Administration and representatives from the tax-exempt community.
If you have any questions concerning this matter, please do not hesitate to contact your EisnerAmper tax contact.