Megnut

Beware the non-rebate tax rebate

Astute megnut reader Dawn V. sends in this article explaining the tax "rebate" is, in actuality, an advance on one's 2001 tax obligation. Curious, I pulled out the notice I'd received from the IRS and realized something: Nowhere does the term "rebate" appear on the page. It refers to the check I'll receive as, "tax relief," and says it is based on information I submitted on my 2000 return. But it does not say it's a rebate on taxes I paid in 2000, which was my understanding. So where did this "rebate" idea come from?

It looks like articles about the plan use the word "rebate" to explain the "tax relief," such as this one in the Washington Post (from Google's cache since the original URL's dead on the Post's site). The Street also calls it a "rebate" and says "The last time the government cut rebate checks was 1975," referring to the Tax Reduction Act of 1975:

The Tax Reduction Act of 1975 was signed into law on March 29, 1975, in the midst of the deepest recession in postwar history. Taxpayers received a 10 percent 'refund' on their 1974 taxes, with a minimum of $100 and a maximum of $200. Checks were mailed out in the second quarter of 1975. ยน

But if you look at the way the 1975 plan worked, it actually was a refund on taxes paid, not an advance on monies to be paid. Perhaps this is a source of the confusion: Dictionary.com defines rebate as,

A deduction from an amount to be paid or a return of part of an amount given in payment.

So while you or I assume rebate means "return of a part of an amount given in payment," i.e. a refund on taxes paid in 2000, the media and the government means, "[a] deduction from an amount to be paid," i.e. an advance on your refund for 2001. That's some tricky cash-flow shit, yo.

Imagine one day at work your boss says, "You've been working so hard, I'm going to give you a bonus. Here's $300."

"Thanks!" you say, pocketing the cash.

"No problem," s/he replies, "Oh, and your next paycheck will be $300 less."

This money isn't money being refunded to from taxes you've already paid. It is simply money you were going to get nine months from now when you filed your 2001 tax return.

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