The Internal Revenue Service will be mailing out checks to certain taxpayers in late July or early August. These checks are an advance payment on your 2003 tax return. The amount will be $400 for each child age 16 and under.

It always amazes me that Congress can take something as easy as this and make it very complicated. For most of you, it will be a simple process. IRS will be looking at your 2002 tax return and making their best guess of how much additional money you will be getting back in 2003 because of the increased Child Tax Credit.

The Child Tax Credit (not be confused with the Child Care Credit for daycare expenses) for 2002 was $600 for each dependent age 16 and under. Congress has increased the credit in 2003 to $1,000 per child. The complexity arises because of certain taxpayers who do not have enough tax to use the credit. There also is the situation of taxpayers who claim different dependents in 2003 than they did in 2002.

The Child Tax Credit is a non-refundable credit, meaning that you have to have enough income and enough tax to use it up. For certain low income people, this means there will be no refund checks coming in the mail. As of today, Congress is still debating what to do about these people. It is debating whether to issue rebate checks to them as well, even though they don't qualify. It seems likely that they may change the rules to make this a refundable credit for these low income people, but my guess is that this will happen so late in the year that they will not send out rebate checks. They will just give you the credit on next year's tax return.

Anytime Congress make changes during the year, these changes don't normally show up until you file your 2003 tax return next spring. In the case of these rebate checks, the 2003 tax return will show a $1,000 credit per child. You will have to reduce this by the amount of your rebate check. Taxpayers who qualify for a higher amount, but do not receive a rebate check, will get the correct amount, in full, when they file their 2003 tax return next spring. The most common example of this is a child born during 2003. No rebate check will be issued this summer. The taxpayer will get a full $1,000 credit on next year's tax return.

Congress has also hinted that taxpayers who receive a rebate check for more money than they are entitled will get to keep the overpayment. I have not seen this in any of my reading material, but that was the way IRS handled the last rebate checks they sent out in 2001. These were issued because of the reduction in tax rates starting July 1, 2001.

In conclusion, watch your mail near the end of July. If you have children under age 17, you will probably be receiving a check. Don't worry. If you feel like you should be getting a check, but it doesn't show up, you will still get your money next spring. There will be worksheets and possibly an additional Child Tax Credit form as part of your 2003 tax return to be sure that you get the full $1,000 credit per child. If I prepared your 2002 tax return for you, my tax software is able to tell me exactly how much money you will be receiving as a rebate. It also tells me how much tax you will be saving for 2003 based on the other changes Congress recently made. Please call me if you have questions about any of this.