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Any thoughts on the following situation?

My sons, 18 & 16 years old, each have their own Virgin Mobile pay-as-you-go phone. They buy a top-up card at any retailer for at least $20 every 90 days and pay a flat $0.18/min. for all local & long distance calls. If they want more minutes, they buy another top-up-card. No contracts, no monthly bills.

Is this considered a bundled service and therefore they are each eligible for the phone tax credit?

I checked the IRS Q&A's but they did not directly address this situation.


halite

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I just answered my own question....

Since they can't claim any exemptions, because they are claimed as dependents on my return, that disqualifies them from the phone tax credit.

However, the question still remains for those with pay-as-you-go who have themselves as an exemption.


halite
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They are not considered to have paid excise tax and therefore are not able to apply for the credit.

The IRS addresses this in the instructions for form 8913:

"Prepaid Telephone Cards (PTC)
A PTC will be treated as bundled service unless a PTC expressly states it is for local-only service. Generally, the person responsible for collecting the tax is the carrier who transfers the PTC to the transferee. The transferee is the first person that is not a carrier to whom a PTC is transferred by the carrier. The transferee is the person liable for the tax and is eligible to request a credit or refund. For more information, see Regulations section 49.4251-4.

The holder is the person that purchases a PTC to use and not to resell. Holders are not liable for the tax and cannot request a credit or refund.

Example 1.

Z purchases a PTC from S. Z uses the PTC to place telephone calls. Z is a holder and cannot request a credit or refund.


Example 2.

S purchased the PTC from O. O is a transferee that purchased the card from R. R is a carrier. O is eligible to request a credit or refund. S cannot request a credit or refund because S did not purchase the PTC from the carrier.


Prepaid Cellular Telephones
Rules similar to the PTC rules above apply to prepaid cellular telephones. The transferee is the person eligible to request the credit or refund."
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