TAX REFUND CHECKS

10% Bracket

Under current law, the first $45,200 of taxable income for joint filers is taxed at 15 percent.  H.R. 1836 creates a new 10 percent bracket for the first $12,000 of taxable income for joint filers.  As a result, the first  $12,000 of taxable income for joint filers will be taxed at 10 percent instead of 15 percent.  The graph below shows how the 10 percent bracket will affect joint filers, heads of households (i.e., single parents), and single filers this year. 

15 and 10 PERCENT BRACKETS UNDER CURRENT LAW AND HR 1836 (2001)

Refund Checks

The new 10 percent bracket is effective retroactively to the beginning of 2001.  However, taxes are currently being withheld from workers’ paychecks under the old rate structure.  As a result, Treasury will send out checks to provide the benefit of the new 10 percent bracket this year.  The checks will be based on the taxpayer’s 2000 income tax information.[1]  This is the best way to get the refunds into workers’ pockets fast enough to help the economy.  If Treasury did not send out these checks, workers would not receive their refunds until they filed their 2001 tax returns next year.

How Big Are the Refund Checks?

The graph above shows that the new 10 percent rate will apply to the first:

• $6,000 of taxable income for singles,

• $10,000 of taxable income for heads of households, and

•  $12,000 of taxable income for married couples filing jointly.

Under H.R. 1836, taxable income up to these thresholds is taxed at 10 percent instead of 15 percent (a 5 percent rate reduction).  Thus, a taxpayer’s refund will equal 5 percent multiplied by his her taxable income (up to the threshold amount).  Those with at least $6,000 ($10,000 or $12,000) of taxable income will receive the maximum refund amount of:

•  $300 for single taxpayers (5 percent  x  $6,000),

• $500 for heads of households (5 percent  x  $10,000), and

• $600 for married couples filing jointly (5 percent  x  $12,000).

 In no case will the refund check exceed the actual amount of federal income taxes paid in 2000.

 How Many Taxpayers Will Receive Refund Checks?

It is estimated that:

• 130 million tax returns will be filed this year.

• 34 million of these returns have no income tax liability.  In other words, they pay no income taxes at all.  As a result, no refund check will be issued because there is no income tax liability to refund.

•  The remaining 96 million returns have tax liability and will receive refunds.  Of these 96 million returns:

o       79 million will receive the maximum check amount of $300, $500 or $600, and

o       17 million will get a smaller check equal to 5 percent of their taxable income.

When Will Refund Checks Be Mailed?

Taxpayers who filed their 2000 tax returns on time will receive their checks before the end of September.  Eleven million checks will be mailed each week.  The first batch will be mailed on July 20, and the last batch will be mailed on September 28.  Checks will be mailed according to the last two digits of the taxpayer’s Social Security Number (SSN).  Thus, taxpayers with SSNs ending in 00 will have their checks mailed on July 20, and those with SSNs ending in 99 will have their checks mailed on September 28.  For joint returns, the first SSN listed on the return will be used to determine when the check is mailed.  Taxpayers who filed late will either have their check mailed by December 31, or they will be able to claim a credit when they file their 2001 tax return next year.  Taxpayers will receive notices by mail to inform them about the refund checks.

[1] The 2000 tax information is used as proxy for 2001 tax information so that refund checks can be mailed as soon as possible.  If a taxpayer’s 2001 tax information results in a larger refund check, the difference can be claimed as a credit on the taxpayer’s 2001 return.  If the 2001 tax information results in a smaller refund check, the taxpayer is held harmless and does not have to return the difference.