Tax Time Headaches and Tax Saving Opportunities

IRS computers are rejecting retirees' 1040s. Working couples are facing unexpected bills. The stimulus created both traps and money saving opportunities on 2009 returns.

The big stimulus bill that Congress passed last year included a tax break called the "Making Work Pay" credit. As it turns out, a more accurate name would have been simply the "Making Work" credit.

Recently retired seniors and some who work part time are having their electronically filed returns claiming this credit rejected by the Internal Revenue Service's computers in large numbers. Why? The credit usually paid through lower tax withholding rates of $400 per worker (or $800 per couple) is supposed to be reduced by the also new $250 per person (or $500 per couple) "Economic Recovery Payment" sent to Social Security recipients and veterans on disability. Supposedly, the senior filers didn't accurately state whether they got the $250 payment when filling out the new Schedule M for the Making Work Pay credit.

Robert Meighan, a CPA and vice president of Turbo Tax, Intuit’s tax preparation software unit, reports that aside from mistakes seen every year, the $250 discrepancy is the most common reason customers' 2009 returns are being bounced back by IRS computers.

The two tax breaks were among a dozen new individual tax benefits Congress approved as part of the $787 billion stimulus bill last year. But now the massive package is creating tax time headaches and tax saving opportunities for millions of families.