TurboTax software errors could cause penalties, interest charges

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MONTPELIER >> The state tax department won't be able to warn taxpayers they may have underpaid on their 2015 taxes before December but plans to begin issuing penalties and charging interest to those who don't pay up, Commissioner Mary Peterson said.

TurboTax software users who itemized their deductions have been getting notices in recent weeks that the software had in some cases underestimated the amount of tax they owed.

"I actually just amended my state return after getting a reminder email from TurboTax this morning," said Rep. Avram Patt, D-Worcester, adding that he'd been instructed to include with the amended return a check for $319.

A Department of Taxes statement said interest would begin accruing on unpaid tax debt as of July 1. Penalties can be applied to those not fully paid up as of Oct. 1.

Peterson said Tuesday that TurboTax, an Intuit product, was not the only software vendor or tax preparer to make errors as they tried to adapt to tax changes Vermont passed last year. Those changes put new caps on itemized deductions and ended the deductibility of the previous year's state income taxes.

The Department of Taxes said there were other tax preparers and software on the list for suspected errors . The largest, TurboTax, is used by about a third of Vermont tax filers, Peterson said.

More than 19,000 filers who took itemized deductions should check to be sure their software or that used by their tax preparer capped deductions properly and avoided taking a deduction for state taxes paid in the previous year.

Mountain View, California-based Intuit Inc. said the TurboTax errors were fixed by April 1, so people doing taxes in the final weeks before the due date should not be affected. But not all the vendors fixed their errors by that date, Peterson said. Adding to the uncertainty, the errors were not the same across all the vendors, she added.

Like much in tax law, the latter changes imposed last year are complicated. The federal government allows taxpayers who itemize to deduct state income taxes from their income. Historically, that affected taxable income for the state return as well. The 2015 change prompted the inclusion of a new form for itemized filers that essentially erased the federal deduction from state taxes.

Patt called the situation "a minor annoyance." He said he had learned that to correct the errors "you have to file by paper, including your federal return and your W2s and 1099 forms" reflecting income. "Then it's at least a buck-50 on postage."


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