Bonehead tax mistake. Must I pay tax due calculated incorrectly?
April 10, 2016 1:55 PM   Subscribe

I made a stupid mistake filing my tax return: I accidentally underreported the amount of state tax withheld by failing to fill in that value from one of my W2s. Correspondingly, TaxAct calculated that I owed four figures to Illinois (including a $300 underpayment penalty) and about $100 to the US Government. I e-filed over the weekend and have the vouchers to mail in with my payments. Only after I filed did I realize my mistake. Updating the W2 in TaxAct shows that I'm actually due a refund from both federal and state governments.

I'm pretty sure I know the answer, but can anyone confirm that I'm now stuck (1) sending in the payments that correspond to my original, incorrect return and then (2) filing federal and state 1040X forms, mailing them in, and waiting a few months with crossed fingers that this will get resolved?

I'm going to try to call the IRS tomorrow and talk to someone. Has anyone been through something similar who can offer some words of encouragement? I'm feeling really pessimistic about the chances of this all working out in the end - I can find lots of FAQs and discussions about what happens when it turns out you OWE more tax, but it doesn't seem like anyone else makes the mistake of accidentally sending the government a bunch of money when they don't actually owe anything.

PSA: If you haven't filed yet, learn from my experience! Check everything twice, and don't dash off your e-file in a stolen five minutes in an attempt to get this off your plate - you might end up making way more work for yourself.
posted by ndg to Law & Government (10 answers total)
Oh, another thing: I can't find anywhere in the IL 1040x instructions that explain how to get a refund for penalties improperly paid. Is that money good as gone?
posted by ndg at 1:57 PM on April 10, 2016

In my experience, you will eventually get the money back. It took the IRS four years to send me the check for the year I paid and I shouldn't, but that was because they were the ones who noticed the math error and also someone was trying to steal my refunds so it involved their fraud people too.

I will tell you that calling them will be really frustrating and you may not get through. This is the worst time to be calling them and it's been bad even in the off season for years.
posted by SMPA at 2:03 PM on April 10, 2016

You should wait for real expert advice, but if you haven't sent in any payment yet, I don't think there's any need to. The 1040X form has a section for tax you've already paid, which includes paycheck withholding, estimated payments, and any amount you sent in with your original return. That gets all pooled together and compared to the amount of tax you should have paid in total throughout the year.

Don't send the original check, fill in that line as 0, and it should all work out okay.

The only danger I see is if they determine you're wrong about not owing anything you'll have additional penalties/interest to pay.
posted by nobody at 3:36 PM on April 10, 2016 [1 favorite]

(I should add: I've only looked at the Federal 1040x form; not sure whether Illinois' might work differently.)
posted by nobody at 3:37 PM on April 10, 2016

When a similar situation happened to me. I filed an amendment to my taxes. I believe I included what I paid in taxes. Eventually I got my what I paid plus refund.

But all of that money was from the federal level, not from the state. With the IL budget crisis you may have worse luck getting someone to resolve it at the state level.
posted by AlexiaSky at 4:19 PM on April 10, 2016

Former IRS Tax Examiner here, this advice is mine, and not that of the Service. I worked in Individual Master File Adjustments, my training included Form 1040X and Penalties and Penalty Abatement. I can't speak to your state taxes, but I will speak to your Federal return.

I agree with nobody, and what I would do is file on Form 1040X with your correct figures. IIRC there is a grid on Form 1040X with "as originally filed", "change", and "as amended". Fill in the appropriate boxes under the "as amended" heading with the correct figures.

For the reason for your amendment I would put something like "Taxpayer inadvertently reported the incorrect amount of withholding on their original return."

Your issue is something I saw many many times when I worked at the IRS, and I would love to get cases like this because it was just a slam dunk to make this adjustment. Don't worry, if the result of all this is that you have overpaid your taxes, once the adjustment is input the overpayment should be refunded to you in 4 to 6 weeks.
posted by Rob Rockets at 4:50 PM on April 10, 2016 [11 favorites]

Thanks so much to everyone for their responses - Rob Rockets, I especially appreciate you weighing in. I realize you can't speak to how IL does things, but if you have an opinion, it'd be great to know if you think I'm under any obligation to actually send checks reflecting what was on my original return. Since 1040x forms have to be mailed in and take weeks to be processed, and I can't even submit an IL-1040x until the IRS approves my Federal one, I wonder if there's an issue with me not submitting (undue) payment even though the returns have been filed. (As AlexiaSky's comment implies, I would much rather hang on to my $X,XXX in the meantime than hand it over to IL if I can help it.)
posted by ndg at 5:34 PM on April 10, 2016

IMHO it's no big deal if the payments a taxpayer submits before the original return due date match the tax obligation listed on their tax module for that tax period. The IRS will just assess/refund as appropriate.

In your case, you could file Form 1040X before the original return due date of April 18th (extra 3 days this year due to Emancipation Day holiday). That way you can have a warm fuzzy that your amended return reflects the correct withholding before the original return due date. It's not unusual for a taxpayer to file on Form 1040X before the original due date. The IRS will figure it out, they're going to add up all of your payments and subtract your taxes and send you a refund.

I've been thinking about your IL state penalty situation. Here's Pub 103, which explains IL Penalties and Interest, and here is the IL Department of Revenue regulations regarding reasonable cause for penalty abatement. I'm assuming this is the first time you have owed a state tax penalty. I would write a letter to the IL Department of Revenue stating that you made a "good faith effort to determine you proper tax liability and made the effort to pay your tax liability in a timely fashion." Further, if this was the first time you have been assessed a tax penalty I would say that, and if you have filed and paid timely in previous tax years I would say that. Based on my experience that verbiage should result in penalty abatement, but I can't guarantee anything.

The IRS doesn't refund interest charged to taxpayers unless the interest was due to a ministerial act on the part of the IRS, I expect that IL is the same way. So don't expect a refund on any interest you paid IL, if any.
posted by Rob Rockets at 8:00 PM on April 10, 2016 [2 favorites]

Thanks again, Rob Rockets. Just wanted to provide an update for posterity.

I was able to get ahold of people at both the IL Dept. of Revenue and the IRS this morning. The IRS said that I don't need to send them a check as long as I file my amendment right away - it'll all work out. The very helpful person I spoke to in Springfield told me that, unfortunately, I do need to pay the amount of tax shown to be due on my original return or be assessed a late payment penalty, which would continue to accrue while my 1040Xes wind their way through the machinery of government.

I guess I need to decide whether I'd rather take my chances incurring and then fighting a late-payment penalty or counting on the state to process my amended return appropriately.
posted by ndg at 9:29 AM on April 11, 2016

Hey, that was me last year!

I filed an amended return for both state and federal, and listed my reason as 'forgot all my paperwork the first time.' I made photocopies of the amended return, and when I got the 'Hey, you owe us $' letters, I wrote back with an explanation of my boneheadedness, and enclosed a photocopy of the amended return. It took a while to get fully sorted out, but I did eventually get my refunds sometime in August, and didn't have to pay a penalty.
posted by culfinglin at 3:27 PM on April 13, 2016

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