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Stimulus scrambles tax returns

Nearly 1 of every 6 tax returns filed so far includes errors in reporting last year’s stimulus payments, the IRS said, blaming confusion among tax preparers and early releases of tax software.
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Nearly 1 of every 6 tax returns filed so far includes errors in reporting last year’s federal stimulus payments, the Internal Revenue Service said, blaming confusion among professional tax preparers and early releases of tax software.

The government sent nearly 119 million checks of $300 to $1,200 last year as a way to boost spending and kick-start the economy. Those payments aren’t taxable, the IRS said.

But the 2008 tax forms aren’t very clear about that. You still have to acknowledge getting a check on your return for bookkeeping purposes. And that’s misleading taxpayers — and even some professional tax preparers and early releases of tax software — into mistakenly calculating it as income.

About 15 percent of the 2008 returns already received by the IRS have the mistake, causing filers to make higher tax payments or claim smaller refunds than they were supposed to, the agency said. It said correcting the error can delay any refunds taxpayers have coming.

“The first time it happened I was shocked,” said Tina Wicenzcik of Savannah, Ga., who tried to use Web-based software to prepare her return late last month. She couldn’t figure out why the program kept telling her that her refund would be less after she entered the $1,200 stimulus payment her family received last spring.

“See, I plug it in and the refund goes down,” she said.  “If I put zero in, the refund goes back up.”

Stimulus credit? ‘Most people deserve nothing’
What led Wicenzcik and others astray is something called the recovery rebate credit, a one-time provision of the 2008 tax code that gives some Americans a second chance at claiming a stimulus payment.

The credit is available only to about 3 percent of taxpayers, who fall into one of two categories: those who either got no check last year or got a smaller check than they were due, and those whose family situations changed later in the year to a status that would have made them eligible for a bigger check — by having a bouncing baby dependent, for example.

They’re the only taxpayers who should worry about their stimulus checks on their returns, and it’s worth doing so, because they could get something back.

In an attempt to be helpful, the IRS includes a worksheet to help you figure out whether you’re eligible for the credit. That’s where you enter your stimulus payment, and if you’re like most taxpayers, your correct result will likely be zero, said Kevin McCormally, editorial director of Kiplinger Washington Editors.

“First of all, to think about the recovery rebate credit, you have to think back to last year when we got those stimulus checks,” McCormally said.

“Those stimulus checks were actually a prepayment of recovery rebate credit. So most people aren’t going to get this credit, because they got the money last summer,” he said.

“The IRS has concocted this 29-line worksheet to slog through to figure out how much of this credit you deserve, [but] most people deserve nothing.”

The IRS has confirmed that some software packages — the agency would not name them — were initially getting it wrong, but those problems were corrected in later software revisions. The first thing anyone preparing their returns on a computer should do is contact the software provider to make sure he or she has the latest updates.

If the problem persists, filers can simply let the IRS do the calculation for them.

“We are seeing this and similar problems with many returns,” said Eric Erickson, a spokesman for the IRS. If a software package is telling you that you owe more tax or is shrinking your refund because of the stimulus payment, “what we are telling people to do is just leave the line blank or enter a zero.”