Bloggers and forums are abuzz over the news that TurboTax may be calculating the Recovery Rebate incorrectly. Apparently TurboTax users are getting letters from the IRS complaining that they claimed too large a credit for the rebate, and that they’ll need to pay it back. The TurboTax team has responded to explain some of the confusion, but that’s not the whole story.
One TurboTax employee responded on a blog post:
Sounds like you did not enter the correct rebate amount from 2007 (the amount before any offsets). Any rebate calculated on your 2008 return is simply the amount you were entitled to in either 2007 or 2008 reduced by the credit received. Without knowing your specific situation, it’s very difficult to tell you what you should have been entitled to claim. However, generally it would have been $600 (single) or $1200 (joint) plus $300 for each child.
Just so you know, with over 30 million returns filed for 2007 and 2008, we are not aware of any calculation issue in this area. I would suggest you contact the IRS first to determine how they arrived at their number.
I hope this information helps.
Bob Meighan
VP, TurboTax
He later added:
I would suggest you send a letter to the IRS requesting abatement of the penalty. They are generally pretty good about eliminating the penalty when it’s for a reasonable cause. Use language like “I respectfully request abatement of the penalty because…”
… I can confidently say there is not a calculation error with the rebate. I encourage you to call the IRS to find out how they arrived at their number and then compare it what you may have entered. In every case that I’ve seen, it’s been a case where the user entered the incorrect rebate received from the prior year.
(Interestingly enough, this isn’t the first time Meighan has gotten involved in online discussions of Turbotax.)
But what’s really going on is this: the stimulus plan has created a very confusing situation for the average taxpayer. If they missed the stimulus one year, they could get it the next — and tax software has to take that into account. Unfortunately, there’s no easy way to set this up. TurboTax keeps track of every user’s expected refund (or expected amount owed), and had to assume either that taxpayers would get a stimulus payment (so when they said they wouldn’t, their expected refund would drop painfully), or assume that they wouldn’t (so taxpayers expecting a stimulus payment would think they owed more money for a while.
The users may be partly to blame — most people were able to figure out how to file. On the other hand, people using different tax filing software were able to file weith less confusion and fewer mistakes. Hopefully, they’ll catch any confusing issues like this by next year’s tax season
Tax Blog Roundup: The Recovery Rebate and Turbotax
- Kay Bell at Don’t Mess With Taxes publicized the story in her Tax Carnival post.
- The Sun’s Financial Diary has a first-person account, and the comments have more.
- The TurboTax blog announced the Recovery Rebate feature back in December.
- TaxGirl has a reader who ran into a similar issue, but caught it before the IRS started asking for fines.
- The Wandering Tax Pro suggests double-checking Turbotax through a calculator on the IRS website. (The correct link is here.)
Forum posts asking about the Recovery Rebate and Turbotax
- “PennyLane” gets different numbers from TaxAct and TurboTax.
- “dirtyinjersey” is extremely confused by how TurboTax does the math (and one one user’s response claims that “The IRS is verifying every return due to the screwups. 1 in 6 tax returns made a mistake on this line alone.”)
- “Susan” asks, and a TurboTax representative answers.
- “Judy” explains that other tax preparation programs have the same issue.
- Reddit.com user “Popperian” got a letter from the IRS — that blamed the IRS!: “Apparently TurboTax was following the law and one-upped the I.R.S. who had screwed up some of it’s formulas… The I.R.S., of course, didn’t admit the error, just stated “the existence of an error” on the letter, ROFL.”
I,too, filed 2008 taxes with TURDO TAX and received a demanding letter from the IRS stating that what I entered and what my employer paid me was conflicting, and now I OWE $750+ plus penalties?? How can that be? I entered EXACTLY what was on my W2 for 2008.
That’s not ALL. When I filed my elderly father’s 2009 taxes, ( He is NOW in a nursing facility with dementia, alzheimers and glaucoma) I JUST received a letter from the IRS stating that he never FILED 2009 taxes. WTF is going on? I am NOT calling Pakistan to get frustrated on the telephone. And I am looking to see if a class action suit has been filed against TURDO Tax for 2008.
TurboTax is not at fault for the recovery rebate ruckus. In fact, the IRS provides taxpayers with access to their tax rebate amount. Thus, they have the records of how much everyone received. I’m not sure if I’m missing something but the IRS probably should have cross checked that information before issuing the refund.
It is not just TurboTax customers who are getting letters from the IRS on the rebate, it is hundreds of thousands of taxpayers, without regard to the software they used. The IRS has publicly stated that the rebate issue is probably one of the top issues from this past season.
The reason so many have been taxpayers have had their rebate recomputed by the IRS is because they entered the 2007 rebate amount incorrectly on their 2008 tax return. For many taxpayers, their 2007 rebate was reduced (or offset) by delinquent federal taxes, child support, etc. and this caused them to enter the amount after offset (not correct). Many others erroneously indicated they received no rebate even though they did. As a result, in both cases the rebate calculated for 2008 will be wrong.
I hope this information helps.
Bob Meighan
VP, TurboTax
I’m getting ready to pay the IRS $1200 for Turbo Tax’s miscalculation of the rebate. I found the error – and I put the blame on Turbo Tax.
On the recovery rebate credit worksheet, lines 1 and 2 are filled in correctly. Line 3 is left blank (asking if my wife and I are filing jointly). Hmmmm. Had it been filled in correctly, it would go to line 4 to ask if either of us were members of the armed forces – and that’s a “no”. With a “no”, things should have stopped there. But, Turbo Tax went on to calculate my rebate, which I should not get per the form (incorrectly filled out by Turbo Tax).
So, I’m paying the amount I owe – plus penalties (thank you Turbo Tax).
As for me, I’m going back to doing taxes by hand.
This is the 2nd time Turbo Tax misled me.
Stuart
PS: I’ve posted this same message on other sites. This is a problem that seems to be coming to light just now that the IRS is sending out their notices. If you have a similar problem, check your worksheet to see if you see the same error.