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What parents can expect from summer tax refund

Published Sep. 1, 2005

For the second time in three years, millions of Americans will be getting a little something extra from Uncle Sam: midyear tax refunds.

The refund checks, offspring of the tax cut plan signed recently by President Bush, will go to about 25-million households that claimed the child tax credit on 2002 returns. The checks, for as much as $400 per eligible child, will be mailed in late July and early August.

Much like the refunds in the summer of 2001, which were also a product of a Bush tax cut, checks will go first to those who filed returns by April 15. Those who asked for filing extensions also may get refunds, but theirs won't be mailed until four to six weeks after their returns are processed.

Here's a look at who will get refunds, when they will get them, and how the refunds may affect returns for the 2003 tax year.

Q. What are the checks for?

The new law boosts the child tax credit from $600 to $1,000 per eligible child for the 2003 and 2004 tax years. The refund checks are an advance on the higher credit that parents are now expected to claim for 2003. (The IRS won't send checks for the entire credit, because most families account for their credits and deductions in payroll withholding; sending a check for the entire credit could result in underwithholding.)

Because the IRS can't be sure who will claim the child tax credit in 2003, it's sending checks to taxpayers who claimed the credit for the 2002 tax year.

Q. How much will I get?

That depends on two factors: how many children you have and how much tax you paid on your 2002 income.

Most middle-income parents _ those with adjusted gross income of about $40,000 to about $110,000 _ will receive the full amount of $400 per eligible child. However, some lower-income parents will receive less. Some high-income parents will receive nothing.

Q. Why will lower-income parents get less?

The child tax credit can't reduce your federal income tax below zero. Many low-income families pay less than $400 in tax per eligible child, so their tax refund generally would amount to the lesser of the credit amount or the amount of tax they paid.

There's one exception, however. Low-income families who qualify for another tax break known as the "additional child tax credit" may get somewhat more than the federal income tax that they paid. But the calculation to determine how much they'll get is complex. Fortunately, the IRS will calculate the amount for taxpayers, based on the information provided on 2002 returns.

Q. Why might high-income families not get anything?

The child tax credit is limited by income. Singles with adjusted gross income of more than $75,000 and married couples with more than $110,000 lose $50 of the credit for each $1,000 that their income exceeds the threshold. (Adjusted gross income is income after workplace deductions such as 401(k) plan contributions.)

In other words, a couple with two children would have been completely locked out of claiming the child tax credit in 2002 once their income exceeded $133,000. Now, similarly situated couples will be able to claim at least a partial credit until their income exceeds $149,000. However, if this family did not claim the credit in 2002, they will not get an advance refund check. They will have to wait until next year to claim the credit when filing 2003 returns.

Q. Will anyone else who claimed the credit on a 2002 return not get a check?

Yes. The IRS also will exclude taxpayers whose children were born before 1986, since the credit only goes to those with children who will be under the age of 17 at the end of 2003.

Q. When can I expect a refund?

Refunds are going out based on the last two digits of the first Social Security number listed on each return. Checks to those with Social Security numbers ending between 00 and 33 will be mailed on July 25. Checks to those with numbers ending in 34 to 66 will be mailed Aug. 1. Those with higher numbers can expect checks after Aug. 8.

Q. What if I get a check for more than I'm due?

If the advance payment turns out to be greater than the child tax credit you're entitled to claim on your 2003 return, you can keep the difference _ a gift from the government. If it turns out to be less, you can claim the difference on your 2003 return.