Bob Pelletier of Scarborough received a letter in the mail this week telling him that the $1,200 property tax refund he used to get each August won’t arrive this year.
“They’ve repealed the program and put in its place a basic pacifier that’s a $300 credit. It’s kind of a joke for someone on Social Security who is barely getting by,” said Pelletier, who declined to give his age. “It’s obviously going to be a huge difference for me.”
Pelletier’s letter from Maine Revenue Services indicated that instead of the refund, he may qualify for a $300 refundable tax credit starting in January.
The current biennial state budget repealed the Maine Residents Property Tax and Rent Refund Program, known as the “circuit breaker.”
It was replaced by the property tax fairness credit, which is refundable — it can be claimed in full even if it exceeds taxes owed. But to receive it, a homeowner must file a state income tax return, even if the person receives only Social Security income.
Fewer than half the estimated 200,000 eligible households in Maine had applied for the circuit breaker program in the past. In fiscal year 2012, it had about 89,000 recipients, said Michael Allen, the state’s associate commissioner for tax policy. In 2011, the average yearly refund was $479 and the maximum refund was $1,600, according to Maine Revenue Services.
A study by the AARP found a 40 percent participation rate among similar programs in other states.
Experts have speculated that people did not participate for a variety of reasons. Some didn’t know it existed or assumed they didn’t qualify. Others may have found the application form too complicated or didn’t want to deal with Maine Revenue Services.
“A lot of people in the past may not have participated for any number of reasons. It’s hard to know,” said Allen.
Under the new tax credit program, the state estimates about 125,000 people will qualify to receive credits totaling $34 million to $35 million, Allen said.
Mainers who qualify can get a refundable credit of up to $300 a year, or up to $400 if they are 70 or older.
Rep. Margaret Rotundo, D-Lewiston, co-chair of the Legislature’s Appropriations and Financial Affairs Committee, said the joint committee reached a “compromise” after the governor threatened to significantly alter the circuit breaker program by making it available only to people aged 65 and older, or veterans.
Rotundo said Democrats felt they could not muster enough votes to override the governor, but were reluctant to do away with the program. She said Democrats hope to increase the refundable amounts of the tax credit in the future.
“It’s not as much but it is better than nothing,” Rotundo said.
Rep. Kathleen D. Chase, R-Wells, ranking minority member on the Appropriations Committee, said the circuit breaker was too complicated and confusing. She said the new program should attract more applicants because the forms will be easier to fill out.
Chase said the committee felt it important to offer some relief, even if it is less than the circuit breaker.
“All in all going forward, I think we will see a lot more people applying for refunds,” Chase said.
House Majority Leader Seth Berry (D-Bowdoinham) issued a statement Wednesday night.
“The governor and Republicans were unwilling to give up the tax breaks they passed for the wealthy in order to restore cuts to programs like these that help middle- and low-income Mainers. Demcrats will continue to push for the tax credit to be more robust and fair going forward,” Berry said.
The loss of the property tax and rent refund program may be a hardship for some low-income Mainers, such as Pelletier.
“All bets are off. I have to make some changes. I’m going to sell my house and rent something cheaper. There’s nothing left to cut — there’s food, air, oil. What’s left to trim?” Pelletier said.
The state sent the letter this week explaining the changes to people who would typically get a property tax or rent refund check in August. That letter, as well as information listed on the Maine Revenue Services website, is all the state did to alert people who would otherwise be expecting a check, Allen said.
The new refundable tax credit will get some “outreach efforts” from the state, and through word of mouth from tax professionals and volunteer groups who work with low-income and older residents, Allen said.
The circuit breaker program had been promoted on the Maine Revenue Services website, at local libraries and through notices posted on municipal websites.
The change in tax relief programs will save the state’s general fund an estimated $20 million to $25 million, Allen said. That number is based on the total amount the property tax and rent refund program would have cost had it continued, he said. The circuit breaker program was budgeted at just over $43 million in fiscal 2012.
There are other tax-relief programs available for homeowners, such as the homestead exemption, which subtracts $10,000 from the assessed value of a Mainer’s home for the purpose of assessing property taxes. Some narrow exemptions also exist for certain veterans.
The new program aims to help Maine homeowners or renters who make $40,000 a year or less. To qualify, individuals must have paid property tax on a home in Maine that was more than 10 percent of their Maine adjusted gross income, or paid rent that was more than 40 percent of Maine adjusted gross income.
Social Security does not count as income. Sources of income include pensions and retirement pay, distributions from an IRA or 401K plan, rental income from real estate, interest from dividends from stocks or bonds, unemployment benefits, as well as damages paid under court judgments.
To get the tax credit, individuals must file state tax returns and fill out a special worksheet, which will be available in January.
Jessica Hall can be contacted at 791-6316 or at: