Early returns show some confusion about rebate checks

WASHINGTON -- The only new line on this year's 1040 tax form is causing confusion among many taxpayers, prompting the IRS to issue some guidance Wednesday about how to treat last year's rebate checks.

The new line is for people who didn't receive a check, or got less than the full amount, to claim a credit of up to $300 for individuals, $500 for heads of households or $600 for married couples filing jointly. Early returns received by the Internal Revenue Service indicate it is the single most frequent error people have been making.

Some people who should have claimed a credit left it blank. Others who got a full rebate check last year are putting that amount on their tax returns when they shouldn't. Some mistakenly think they have to give some money back.

"Errors can delay processing and we want everyone due a refund to get it as quickly as possible," IRS Commissioner Charles Rossotti said Wednesday.

The 86 million rebate checks mailed out last year stemmed from the new 10 percent income tax rate enacted as part of the 10-year, $1.35 trillion tax cut. The checks represented an advance payment for 2001, but eligibility was based on 2000 tax returns and some people were left out.

The Rate Reduction Credit was created so that people who had sufficient taxable income in 2001 but didn't get a check could still benefit from the new, lower 10 percent tax rate. The rate applies to the first $6,000 of a single taxpayer's income, $10,000 for a head of household and $12,000 for a married couple.

The credit is found on line 47 of the 1040 form, line 30 of the 1040A form and line 7 of the 1040EZ form.

Anyone who got a check in the full amount for their filing status should not claim the credit, the IRS says.

People who got no check in 2001, or got less than the full amount, could be entitled to claim some or all of the credit. The 1040 form instructions include a Rate Reduction Credit worksheet to figure this out.

Some people who were claimed as dependents in 2000, but not in 2001, could be eligible for tax rate reduction as well if they had sufficient income. They should complete the "Tax Computation Worksheet for Certain Dependents," again found in the tax return instructions, to find out.

There's one key catch: people who owed back taxes or other federal debts, or had past-due child support, may have had these amounts deducted by the government from their rebate checks.