IRS News Release  
December 13, 1996

Tax Law Change Nets Refunds
for Several Thousand Taxpayers

WASHINGTON - A technical correction to a 1993 law will mean refunds for several thousand middle-income taxpayers, according to Internal Revenue Service estimates. Affected is the interest exclusion for those who redeemed qualified U.S. Savings Bonds after 1992, paid higher education expenses in the year of redemption, and had incomes between the "former threshold" and "exclusion ends" amounts listed below.

The change increased the threshold for each year by over $8,000 for married couples and by over $5,000 for unmarried persons. The exclusion phases out as income increases, ending at $30,000 above the threshold for married couples, $15,000 above for unmarrieds. Married persons filing separately cannot claim the exclusion.

Taxpayers who redeemed Series EE U.S. Savings Bonds issued after 1989 and paid higher education expenses in the year they redeemed the bonds may file amended returns if their modified adjusted gross income (AGI) was between the former threshold amount and the amount at which the exclusion ends:

                    FORMER         REVISED      EXCLUSION

Married   1993      $60,000        $68,250        $ 98,250
          1994      $61,850        $70,350        $100,350
          1995      $63,450        $72,150        $102,150

Unmarried 1993      $40,000        $45,500        $ 60,500
          1994      $41,200        $46,900        $ 61,900
          1995      $42,300        $48,100        $ 63,100

A surviving spouse who files as a qualifying widow(er) uses the table amounts for a married person.

Taxpayers should use Form 8815, "Exclusion of Interest From Series EE U.S. Savings Bonds Issued After 1989," to figure the correct exclusion and attach it to a completed Form 1040X, "Amended U.S. Individual Income Tax Return," for each year being amended. Any version of Form 8815 may be used by marking the proper year in the upper right corner and entering on line 10 the appropriate "Revised Threshold" amount from the above table. However, if the amount entered on line 9 equals or exceeds the appropriate "Exclusion Ends" amount in the table, the taxpayer does not qualify for the exclusion and should not complete the form.

Taxpayers filing amended returns must also check to see whether the smaller AGI resulting from their increased exclusion affects other tax return items, such as their itemized deductions for medical, miscellaneous, or casualty loss expenses.

The 1996 Form 8815 has the correct computation amounts for this year. For married couples, the threshold is $74,200 and the exclusion phases out completely for modified AGIs of $104,200. For unmarried persons, the threshold is $49,450 and the exclusion ends at $64,450.

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