Telephone Tax Refunds for Businesses and Tax-Exempt Organizations. 

What is the telephone tax refund?

The telephone tax refund is a one-time payment available on your 2006 federal income tax return, designed to refund previously collected federal excise taxes on long-distance or bundled long-distance services.  It is available to anyone who paid such taxes on landline, wireless, internet long-distance plans or Voice over Internet Protocol (VoIP) services.

Who is eligible to request the telephone tax refund?

In general, any individual, sole proprietor, corporation, partnership, trust or nonprofit organization that paid the tax for long-distance or bundled long-distance services billed after Feb. 28, 2003 and before Aug. 1, 2006 is eligible to request the refund.  To request the refund, Form 8913, Credit for Telephone Excise Tax Paid, must be attached to your 2006 tax return.

There are two methods that can be used to claim the telephone tax refund or credit for businesses:

The Actual Method- This method allows you to use the actual amount of federal excise tax on long-distance or bundled long-distance services.

You will need your actual phone bills for the 41 month period.  You should schedule out the amounts billed for each month of long-distance services and bundled long-distance services, along with the amount of excise tax related to these billings.  The 41month period is from March 1, 2003 through July 31, 2006.   This information should be provided to your accountant to claim this credit on your 2006 return.

The Estimation Method- This method allows you to use a formula in figuring out your credit.  This method allows you to estimate your excise tax refund based on analyzing two months bills.  You will need your monthly bills for April, 2006 and September, 2006, as well as the number of employees that you reported on your 2006 2nd quarter form 941 and the total amount of telephone expenses paid during the 41 month period March 1, 2003 through July 31, 2006.   This method compares the amounts billed during a month with the tax and a month without the tax and applies the percentage difference to the total amount of telephone services billed during the 41 month period.   There is a cap of 1% of phone services for companies with more than 250 employees and a cap of 2% of phone services for companies with 250 or less employees.  In order to use this method, please complete the Excel file (at the top of this page) and provide it to your accountant to claim the credit on your 2006 return.

What about individuals?

Individuals can either use the actual method or the Standard Refund Amounts shown below:

Are there special rules for sole proprietors?

Sole proprietors with gross Schedule C income of $25,000 or less can claim a refund using either the standard amounts for individuals shown below or the actual tax paid method described above. 

Standard Refund Amounts for Individuals:

·           one exemption, the standard refund amount is $30

·           two exemptions, the standard refund amount is $40

·           three exemptions, the standard refund amount is $50

·           four exemptions or more, the standard refund amount is $60

Those with more than $25,000 in gross Schedule C income have three options-

1. they can use the standard amounts for both personal and business expenses,

2. they can use the above formula for business expenses and the actual for personal expenses, or

3. they can use the actual amount of excise tax paid for both business and personal expenses

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