TurboTax Meets the Oregon Kicker -- The Sequel
Some of the shortcomings of the TurboTax tax preparation program became apparent this winter when many Oregon taxpayers discovered that they had donated their huge Oregon income tax "kicker" refunds to the state school fund, without realizing they had done so. The state Department of Revenue offered folks in that position a return of their "kicker," but only if they had filed electronically. If they printed out their TurboTax return on paper last year and sent it in with the donation box checked, it's tough luck from Salem, even though what appeared on the screen immediately before the taxpayers hit the print button did not match what came out of their printer. We're big TurboTax fans at our house, but that's a big Strike 1.
Fortunately, we didn't commit that blunder, and we got our "kicker" check just fine. (Spent it fine, too.) But now it's time to do our 2007 tax returns using TurboTax, and, well, the software's not handling the "kicker" very well. At all.
There's been quite a bit of Googling going on the last few weeks by Oregonians wondering if they have to count the "kicker," which they received in December 2007, as income on their 2007 tax returns. The answer to that question has been published in several places, but before getting to our latest TurboTax story, let's see if we can take our own crack at the tax law itself.
First of all, the "kicker" is a refund of 2006 Oregon state income taxes. As a state income tax refund, it is not taxable on one's Oregon tax returns, period. Oregon income taxes don't do you any good on your Oregon income tax return when you pay them, and so when you get them refunded, you don't have to declare the refund as taxable on your Oregon return.
As for your federal return, however, it ain't necessarily so. The taxability of the refund depends in part on whether you itemized your deductions or took the standard deduction on your 2006 federal return (filed about a year ago). If you took the standard deduction -- that is, you didn't itemize deductions -- you can ignore the "kicker" entirely. But if you itemized on your 2006 return (last year), you generally have to report the "kicker" as taxable income on your 2007 federal return (which people are filling out now), because you deducted your Oregon income tax on your federal return last year.
It's the same as any garden-variety Oregon income tax refund that one might get, even in a non-"kicker" year. Itemizers generally get a federal tax break when they deduct what they paid to the state, and so they have to report income to the feds when they get the state money back. (Folks in sales tax states have a different analysis, but in Oregon -- even in tax-happy Portland -- we needn't worry about that. Yet, anyway.)
There are some exceptions to the rule just stated. Even if you itemized, you don't have to report the "kicker" refund (or any other refund) as income if it didn't give you any tax benefit on a prior tax return. And if, like us and lots of other middle- and upper-class folks, you're subject to the federal alternative minimum tax (AMT), it may turn out that the state income tax deduction you technically took last year on your 2006 federal return didn't save you any tax, because it's not deductible for AMT purposes. Alternatively, some upper-middle- and high-income folks may be able to keep part of the "kicker" off this year's return, even if they weren't subject to the AMT last year, on the ground that the deduction they took for their state income tax on their 2006 federal return was scaled back by the nasty little "phase-down" that cuts back on your federal itemized deductions because you made "too much" money. ("Too much" was defined in 2006 at roughly $150,000 for a married couple.)
If you're in either of these exception areas, the calculations you'll need to go through to figure out how much of your "kicker" is taxable are daunting. But hey, that's why you pay 40 bucks for TurboTax, right? It does all the wicked number-crunching for you, doesn't it?
In this case, don't get your hopes up. We've been trying to get TurboTax 2007 (out of a box, updated constantly on line) to cope with the "kicker," and we've been having a hard time. For one thing, the program doesn't even know that the "kicker" exists. If you also used TurboTax for your 2006 returns, TurboTax 2007 has your Oregon income tax for that year already scoped out to the penny, but unfortunately that's as of last spring, before the "kicker" was announced. As far as we can tell, the program doesn't really have a place to deal with the "surprise" refund -- it's sure you weren't entitled to an Oregon refund, or at least none further than the one you got last spring. And so when you start to tell it about the "kicker," it can't deal with it. We've had to resort to right-clicking several boxes and telling TurboTax to override itself and accept the numbers we're entering rather than the ones it's filling in automatically. That's never a good feeling.
What's worse, if you paid AMT in 2006, TurboTax is offering you no help with the calculations -- nada. You need to go back and figure out on your own your 2006 regular federal tax and AMT without the deduction for the amount you eventually got "kicked back" from Oregon. If that recomputed tax is higher than what those two taxes together actually turned out to be, then the deduction actually saved you some federal tax, and you have put at least part of the "kicker" down as federal income. The way we dealt with it (and we think it's right) was to re-open last year's TurboTax program (which we were smart enough not to uninstall), recompute our 2006 regular tax and AMT without the deduction, and compare it to the 2006 actual federal taxes. In our case, the total tax was the exact same amount with and without the deduction, and so we won't be putting the "kicker" down as income in 2007 after all, even though we itemized last year. (Importantly, we did not save the revised 2006 returns we just created on TurboTax, because they were for hypothetical calculation purposes only, and we didn't want to erase our electronic files of our actual 2006 returns. Saving would have done that.)
When the tax system gets so screwed up that a smart program like TurboTax can't cope with it, we should all feel a little embarrassed. But we're also sensing some real weaknesses in that particular tax prep software as it tries to deal with the quirks of the many different states in which it is sold. We're up to at least Strike 2.
Oh, and one final point on this one. If you do have to report your "kicker" as income on your 2007 federal return, and you file the long form in Oregon, don't forget to subtract the "kicker" out, as indicated, on your 2007 Oregon return. It's line 15 of Form 40.
UPDATE, 2/8, 11:07 p.m.: TurboTax has sent us this pdf file, which instructs users on how to enter the Oregon "kicker" onto the program for purposes of their 2007 federal tax returns. It works if you use TurboTax in the "Interview" mode. If, like us, you use TurboTax in the "Forms" mode, this won't do you much good. They've also sent us an explanation of how you can make it work in the "Forms" mode, and when we get a chance, we'll try it and report back.
UPDATE, 2/11, 3:00 p.m.: It turns out that TurboTax will do all the dirty AMT and "phase-down" calculations for you, but you have to know what to tell the program, and how. A full explanation is available here.
Posted at 1:00 AM
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Comments (22)
Jack,
Wouldn't TurboTax handle all the math (AMT excepted) if you simply input the 1099G during the interview phase?
We just received our State of Oregon DOR 1099G in the mail, and I assume it includes the state refund in addition to the kicker (haven't checked it yet).
Posted by Mister Tee | February 7, 2008 6:16 AM
OK. now I'm depressed again.
I guess that is why I have someone else calculate my taxes for me now...
Posted by Nick | February 7, 2008 8:20 AM
I have the same question as Mister Tee. I've handled the kicker that way in the past. Is that an incorrect approach?
Posted by Metro Watcher | February 7, 2008 9:09 AM
I think that Mr. Jack's points are:
1) there are some complicated exceptions that apply as your taxable income goes up;
2) those exceptions require reexamining portions of your 2006 return, not just doing your 2007 return; and
3) T-Tax doesn't seem to have have those exception cases properly programmed in, so be prepared to override a lot of entries ...
Posted by Nick | February 7, 2008 10:01 AM
When I try to input the 1099-G, there's no place to put the refund. It tells me to go put it on some sort of carryover worksheet, where I can't see where it should go.
Posted by Jack Bog | February 7, 2008 11:29 AM
Jack... I take exception to your statement that "even though what appeared on the screen immediately before the taxpayers hit the print button did not match what came out of their printer." We have not identified a single case of this happening despite extensive internal and external testing and appeals to customers to replicate this situation. We have worked hard with the State of Oregon, the press and customers to understand this issue and we simply cannot find fault with TurboTax. We don't like the position Oregon took with regard to resolving this issue with taxpayers, but the facts do not support the suggestion that TurboTax was at fault.
Bob Meighan
VP, TurboTax
Posted by Bob Meighan | February 7, 2008 6:23 PM
Bob, I am really disappointed that you are still not seeing what I have blogged about here several times. What appeared on the screen was an "X" floating in space, with no legend or anything else around it to identify what it was. When you printed out the return, the "X" was suddenly in a box that said "Donate Kicker." You have not established that that discrepancy could not happen, because it did. I did it with my own computer, and blogged about it. I thought you read that.
TurboTax forms on the screen should all be 100 percent WYSIWYG -- what you see is what you get. What appears on the screen should be what will print out, always, in every case. And it isn't on the Oregon forms, which means that you have a problem.
Now you appear to have a different problem. If you can explain to me how I'm supposed to get TT '07 to process my kicker check in the forms mode on the federal return without a data override, that would be appreciated.
Posted by Jack Bog | February 7, 2008 7:58 PM
Just where is that box that needs to be checked or unchecked about kicker refunds in TurboTax?
Posted by Bill | February 7, 2008 8:17 PM
Bob, I can replicate the situation. I answered "No" to "donate kicker?" in the interview, it was not checked in the worksheet, but it was checked on the document that came out of my printer. How can I contact you and what is the process for showing someone from TurboTax how the software handled the 2006 kicker on my tax return? I emailed customer service and got this back, but have not yet followed up with a phone call:
"-----Original Message-----
From: TurboTax Support [mailto:support@turbotax.com]
Sent: Saturday, February 02, 2008 1:24 PM
To:
Subject: RE: Technical Support (#6565-92733796-0791)
Dear Mr. Smith,
Thank you for contacting TurboTax Customer Service & Support.
Mr. Smith, I understand your issue. What I can recommend you do is call our Shop/Buy department at 1-888-777-3066 and speak to someone there. Again my apologies for any inconvience this may have caused you and I hope that you continue to use our product in the future.
You may receive a survey from us through e-mail in approximately 24 hours asking you about my performance on today's contact, as well as comments you may have in regards to the TurboTax product. So we can continue with our promise to provide our customers with the best support available, please take a few minutes to complete the survey.
Respectfully,
04_Shawn
TurboTax Customer Service & Support
**Please do not reply to this message. This e-mail was sent from a notification-only address that cannot accept incoming e-mail.
Please note:
If you are in further need of Service or Support please visit us here: http://turbotax.intuit.com/support/.
-----Original Message-----
From:
Sent: Feb 2, 2008 8:29:32 AM
Subject: Technical Support
On my 2006 taxes, I answered "No" to the question "Do you want to donate your kicker check to the State School Fund", but the "donate kicker" box had an "X" in it on the printed form I signed and filed, although I did not notice that at the time. I assumed the answers in the worksheet would carry over properly to the printed forms. Consequently, the state of Oregon will not give me my kicker check, and it's because there was a problem with the TurboTax software. I've already filed a formal request for the refund with the state Department of Revenue, and they have denied my request. I am out $533 because of this software glitch. Will you refund that money to me? What is your formal process for filing a complaint, and for me to request this money?
Additional Fields:
System Information: true
Timezone: PST
Operating System: Windows XP
Browser: Firefox 2.0.0.11"
Posted by Smith | February 7, 2008 9:23 PM
I have scrutinized my 2006 Oregon 40 TurboTax return and can't find the line that asks the question, "Do you want to donate your kicker check to the State School Fund?"
What is the line number?
Posted by Bill | February 7, 2008 10:01 PM
http://www.kgw.com/business/stories/kgw_020508_news_kicker_donation_mystery_school_.91465d80.html
Oregon can't solve kicker mystery
11:47 AM PST on Tuesday, February 5, 2008
Associated Press
SALEM, Ore. -- The state has been unable to determine why some Oregon taxpayers had their "kicker" rebates mistakenly donated to the State School Fund.
File photo
"We investigated our systems and everything was and is sound. The software companies have assured us that their products performed as they should," said Rosemary Hardin, spokeswoman for the Department of Revenue. "But we'll keep our antenna up for quite some time regarding this issue."
She added: "E-filing continues to be a safe, reliable and secure way to file taxes."
Kicker checks began arriving in mailboxes Dec. 8 and complaints soon began pouring into the revenue department. In 2007, nearly a million Oregon taxpayers filed electronic returns. About 6,800 of those returns showed a check mark in the box to donate the kicker to the State School Fund.
By the end of December, more than 3,500 people said their rebates had been donated to the fund even though they had not checked a box on the tax form authorizing the gift.
Revenue officials initially said state law prevented them from reversing donations. On Dec. 20, they reversed that position, saying it was clear that some taxpayers had not made the choice to donate.
Of those who complained, about 1,600 filed an official request for a refund by Friday's deadline; However, only 438 provided copies of their returns showing the donation box was not checked, Hardin said. The rest are out of luck.
Also: Say goodbye to kicker refunds
Taxpayers whose claims are approved should expect to get a check in a few weeks. Those refunds will total more than $400,000.
The kicker law, which is written into the Oregon Constitution, requires rebates to taxpayers when income tax collections top projections by more than 2 percent. All told, the state returned $1.1 billion in December.
Posted by Active Citizen | February 7, 2008 11:09 PM
don't mean to burst anyone's bubble, but I think someone is playing around a bit to get a rise out of some folks.
(1) What are the odds that someone responsible for TurboTax is reading this blog, let alone a VP?
(2) TurboTax is a product made by Intuit. I doubt "VP, TurboTax" is a legit title.
(3) Even if we give the benefit of the doubt that "VP, TurboTax" is shorthand for a real job title, officers of companies as sophisticated as Intuit would know not to make comments via 3rd party blogs or any other unauthorized communication channels.
Posted by Nick | February 8, 2008 9:14 AM
I am forwarding to Jack separately an email that contains complete instructions that show just how easy it is to enter your Kicker Refund into TurboTax. It contains step-by-step instructions with screen shots. I'm hoping he can post it in its entirety. I don't know how to post from here with screen shots. And despite what Jack claims, this is a very EASY process.
Also, I am happy to discuss the Kicker issue with anyone who continues to believe that TurboTax is at fault. My email address is b_meighan@intuit.com and I really am VP, TurboTax. While many may express skepticism of this, Intuit actually cares to listen and respond to its customers, including its VPs.
Bob Meighan
VP, TurboTax
Posted by Bob Meighan | February 8, 2008 12:15 PM
Bob:
Can you confirm Jack's approach to dealing with the kicker in the situation of the AMT in 2006?
And, Jack, wouldn't that apply to the entire refund, not just the kicker if you were in AMT. Since those of us deep in AMT territory get no benefit from State Tax withholding, why should we pay tax on any refunds whatsoever?
Posted by mrfearless47 | February 8, 2008 1:10 PM
I am happy to discuss the Kicker issue with anyone who continues to believe that TurboTax is at fault.
You should call the Oregon Department of Revenue, which has obviously determined that it was.
wouldn't that apply to the entire refund, not just the kicker if you were in AMT. Since those of us deep in AMT territory get no benefit from State Tax withholding, why should we pay tax on any refunds whatsoever?
As I wrote yesterday, the "kicker" is just like any other state income tax refund. If you are indeed "deep in AMT territory," it may indeed work out for you, as it did for me, that it is not income.
Posted by Jack Bog | February 8, 2008 1:25 PM
You should call the Oregon Department of Revenue, which has obviously determined that it was.
From what I read, ODOR determined that neither they nor the tax software company made a mistake, and it was just that people had a case of donors regret. (I really thought it was interesting that so many people sent in a copy of their return that clear showed the donation check box checked, but then wrote, and signed, on the back, that they didn't check the box to donate. You would think they could have at least whited out the X, if not changed it in TurboTax.)
Posted by Mike | February 8, 2008 5:19 PM
ODOR determined that neither they nor the tax software company made a mistake, and it was just that people had a case of donors regret.
If that's true, and they still sent out kicker checks to those folks, somebody in the ODOR just willfully converted state funds to private taxpayers. I believe that would be grounds for a substantial jail term.
Posted by Jack Bog | February 8, 2008 7:39 PM
Here is a temporary link to download my PDF that has the instructions for reporting your Kicker Refund. Please excuse any typos, etc. as I put it together quickly to respond to Jack's post. We will post it on the TurboTax support site after the document goes through the normal review process.
Link:
http://download.xdrive.com/s/583444832gPZyUgi3k13n7e2dtij&partner=plus
Here is the text (without pictures, captions and formatting):
Instructions for Entering the Oregon Kicker Refund
TurboTax automatically handles state income tax refunds from the prior year when you prepared your federal and state returns using TurboTax. However, if the refund comes as a result of a future event (like the Kicker Refund), then you need to enter that refund information into TurboTax so it can properly account for the refund.
Using TurboTax, entering the Kicker Refund is easy. The example below assumes that you prepared your 2006 federal and Oregon returns using TurboTax.
1. Start your 2007 return and allow TurboTax to transfer your 2006 tax information.
2. In the Income section of Federal Taxes, select State and Local Refund (see Screen 1). Your Oregon income tax refund from last year ($145 in this example) will already be entered by TurboTax. Select the Revisit button or the Start button for this item (it varies depending on whether you’ve already visited the topic).
Screen 1: Select State and Local Refunds to enter your Kicker Refund.
3. TurboTax displays the refund that it transferred from your 2006 OR tax return (see Screen 2). At this point, TurboTax still does not know about your Kicker Refund. Therefore, in response to “Is this information correct?”, answer No.
Screen 2: Here is the information that TurboTax knows about before the Kicker Refund.
4. On the next TurboTax interview screen, enter the total of your Oregon tax refund plus the Kicker Refund you received in 2007. In this example, we used a regular tax refund of $145 (as shown on the previous screen) and $875 as the Kicker Refund for a total of $1020. The amount you enter should match what Oregon reported on your Form 1099-G.
Screen 3: This screen shows the TOTAL tax refund (including Kicker).
5. If you have no other income tax refunds, you’re basically done other than confirming the additional tax information TurboTax needs to determine if the refunds are taxable (see Screen 4). Fortunately for returning customers, TurboTax already has all the information needed to do this. We just ask you to confirm the information (because the state may have adjusted your return or you may have filed an amended return).
Screen 4: TurboTax now determines if your refunds are taxable.
6. If the information from your 2006 return is correct (see Screen 5), press Yes.
Screen 5: If the information TurboTax captured from last year is correct, select Yes.
7. TurboTax then does the computations to figure how much of the refund is taxable. Screen 6 shows this information.
Screen 6: TurboTax shows how much of your refund is taxable.
That’s all you need to do for TurboTax to properly determine how much of your total Oregon tax refund is taxable. Even if your deductions were limited last year or you were subject to AMT, TurboTax handles all that for you.
Alternative to Above Steps
If you had a tax refund and a Kicker Refund, you can alternatively enter each one separately and you’ll get the same result as above. The choice is yours. The following three screens reflect how you would enter your Kicker Refund as a separate income tax refund.
Screen 7: Select Add Another State if you want to enter the Kicker Refund separately.
-------------
Bob Meighan
VP, TurboTax
Screen 8: Enter the state as Oregon, the Kicker Refund amount and the tax year as 2006.
Screen 9: This is what the Summary screen shows when you enter the state refunds separately.
Bob Meighan
VP, TurboTax
Posted by Bob Meighan | February 9, 2008 11:02 AM
Visit the link below to see the complete instructions on how to enter the Kicker Refund in TurboTax.
Link: http://turbotax.intuit.com/support/go/5740
Bob Meighan
VP, TurboTax
Posted by Bob Meighan | February 9, 2008 5:07 PM
Completely confused???
I did my taxes with H&R Block this year 2007 and efiled. I then a week later receive a Oregon 1099g in the mail, which I can't make heads or tails of. Everyone keeps saying it is from the "kicker" and that I have to claim it on my fed taxes, well I already filed and got paid so not sure what to do, also the amount on my 1099g does not match what my amount was for the kicker. My kicker was $16.00 and 1099g was $863.00, which also doesn't match what I got back from state in 06. What is this 1099g truly for and why do I have to pay taxes on it twice in a since. If I am paying taxes in and the state is saying I paid to much and gives me some back, then what gives the feds the right to make me take it as income and tax me again on it? Does congress have to go through all this crap?! I don't even know at this point if I itimized or not. I know I itemized my medical etc, but I just followed each section as it said too. And here I thought my taxes would be simple and I could handle myself. I guess I will have to pay the big bucks to have them relooked at and/or redone. What a bleepin mess!
Posted by Tracie | February 9, 2008 10:31 PM
I'm about to file my taxes and am reminded of this issue. My wife and I filed jointly and lost $1,016 to Turbo Tax's screw up of the return printing out differently than the worksheet view. We are never buying anything from Turbo Tax again but if you hear anything more on the issue (ie class-action lawsuit) please let me know. I wrote a complaint letter to the Oregon dept of revenue but they rejected it. Thanks for your time.
Posted by zach | February 26, 2008 12:05 AM
Bob,
With all due respect to your company, I am filing an appeal to recover the $1,700 in unintended Kicker donation to the school system.
I have a screen capture of the "phantom X" in the undocumented line that was supposed to show the kicker.
I am working with a reporter now to follow-up on this issue. The problems with the 2007 TT software only give me more reason to make sure that your coders understand that people need help with these things.
I am quite convinced that a TT "silent" update fixed a 2006 TT problem with the kicker because one of the 3 forms I filed did not print the X on the kicker box. Why just one. I'll tell you why, it was done about 3 weeks after the first 2 were done. Something was "fixed" between the when the first 2 and last one were generated.
I understand the the fact that TT and Oregon will never admit liability for this situation. It is not good business to have a monumental error in this process.
Please note that I have used TT for almost 20 years. I even use Quicken to manage my finances. I appreciate your providing the exhaustive instructions to follow this year.
Finally, TT says to print and review your forms BEFORE you file. Those who were able to recover their Kicker from "e-filed" forms are just as lible as those who paper filed.
I also found it interesting that Oregon says that we can deduct the Kicker as a "donation" this year, but in 2006 they failed to put the Kicker Line in the donation section of the Oregon 40 form. Who in heaven's name would look in the Married, Single section on the front page????????????
I will make all of this documentation part of my appeal and we will see how the chips fall.
Phil
Posted by Phil | March 1, 2008 4:16 PM