Shortchanged by Uncle Sam? and Gifts that Avoid the Gift Tax

This week, Gail addresses a tax-related issue many of us were wondering about, and answers a question regarding the gift tax.   

Hey Gail,

My wife and I were supposed to get a check for $600 as part of the government "rebate" program this year. When we opened the envelope, the check was only for $528.16. What happened to the rest?


Dear Fred —

First of all, don't get paranoid. A spokesperson for the IRS told me "there are plenty of couples not getting the full $600." Most folks know by now that as part of the 2001 Tax Act, Congress created a new, "lowest" tax bracket of 10% and made it retroactive to January.

However, instead of changing all the tax forms and withholding amounts mid-year, they came up with a simpler approach to implement the change. People are continuing to pay at the old rate and the IRS is simply giving us back the amount we will have over-paid. The key is we're getting this money now instead of having us wait until we file our 2001 tax returns next year.

Remember, the goal was to get the money into consumers' hands ASAP to help boost the economy. (For more details click on the "Money Matters Archive" button in the upper right-hand corner of this screen and scroll down to my column dated June 15, Tax Rebate Math and the Estate Tax Trojan Horse.")

Based on the new rate, if you're married and file jointly, the first $12,000 of your income will be taxed at 10%; if you're single, the 10% rate applies to your first $6,000 in income. Instead of owing, respectively, $1800 (married, filing joint) or $900 (single) based on the old rate of 15%, the new 10% rate results in taxes of $1200 and $600. Voila! That works out to a savings of $600 for married couples and $300 for singles.

That's how they came up with the value of the check you could receive. (If you file "single, head of household" the maximum check you're eligible for is $500.)

"Could" is the operative word in the last paragraph. Not everyone is eligible for this "advance payment." For starters, this year's checks are based on the tax return you filed last year 2000. In addition, if you were claimed as a "dependent" on someone else's return last year, don't expect a check. Ditto if you didn't owe any income tax last year.

The Internal Revenue Service's Web site ( — don't worry, it's very user-friendly and non-technical — has a bunch of information on the "advance payment" program. And it points out that your check "will be reduced because of any outstanding government debt, such as back taxes or an [over-due] student loan, or because of past-due child support obligations."

So there are lots of reasons why you didn't get the full $600, Fred. The IRS was supposed to send a letter of explanation. But, hey, cut them some slack: we're talking about sending 91 million checks totaling $38 billion dollars and getting them out within a couple of months after the legislation was signed.

You're not getting cheated if you don't get your refund in "advance" because the new 10% bracket will be taken into account when you calculate your 2001 taxes. Look for a special worksheet when you get your tax return forms. If you're itching for an answer now, call the IRS "Individual Taxpayer Assistance" helpline at 800-729-1040. It's open from 7 a.m. until 11 p.m.

Naturally, you will have to deal with the computerized voice which prompts you to select a series of options. Here's what you want to choose: at the first prompt, select "3"; the next choice you want is "2"; and finally, enter "1". That will put you in the "1040 related problems" section. At this point, pick any number you're given and you'll be connected to a live person who can actually access your tax records (scary) and explain why you didn't get the full amount you expected. Hint: call either very early or very late in the day unless you plan to pack a lunch to eat while you wait to get through.

Whether you get it now or get it later, be grateful for lower taxes.




I was reading one of your recent articles which stated that each of us can give a gift of $10,000 each year to as many people as we want.

When you say that we can "give $10,000," does that mean without being taxed?

My mom is retired, receiving Social Security, and she "gave" me $6,000. This $6,000 was taken from an IRA. Would that $6,000 fall into the same category as the $10,000 stated above?



Dear Cheryl —

Give your mom a big, warm kiss for being so generous! The source and type of "gift" does not matter. You can give someone a car, cash, jewelry, etc. The important thing is that you cannot give then more than $10,000 worth of gifts in a single year.

Let's say your mom also gave you her used car this year because she doesn't want to drive anymore. If the car were worth more than $4,000, she would have to file a gift tax return. If she gave the cash to you this year and waited until 2002 to give you the car, no problem.

Here's another example: Suppose your uncle had $30,000 in stock he wanted to give you. If he turned it all over to you in a single year, he would exceed his annual gifting limit by $20,000 and would have to file a gift tax return. On the other hand, he could simply give you $10,000 worth of stock a year for three years and would not have to file anything.

Notice that is is the donor — not the recipient — who must file a gift tax return. (You're on your honor, here, folks. Don't ask me how the IRS can realistically police this.) However, filing a gift tax return does not necessarily mean any gift tax is owed. The IRS just wants to keep a running total. That's because these "greater-than-$10,000" gifts are added up over your lifetime. If the total exceeds a certain amount, they become subject to tax and this would be paid by your estate upon your death.

Right now the amount of "greater-than-$10,000" gifts you can give is tied in with the estate tax. However, the federal estate tax is slated to expire in 2010. At that point, each of us will be allowed to give a million dollars worth of "greater-than-$10,000" gifts without triggering gift tax. Tell your mom not to worry. Unless her son is Bill Gates, she, like the vast majority of us, will never owe any gift tax.

I hope you made your mom proud and did something special with that money, Cheryl!

Take care —



If you have a question for Gail Buckner and the Your $ Matters column, send them to along with your name and phone number.

The views expressed in this article are those of Ms. Buckner or the individual commentator, and do not necessarily reflect the views of Putnam Investments Inc. or any of its affiliates. You should consult your own financial adviser for advice regarding your particular financial circumstances. This article is for information only and is not an offer of the sale of any mutual fund or other investment.