Federal and California taxes incorrectly calculated by TurboTax (desktop) - should TurboTax be responsible for the errors?

[rpmm]

I got back some letters from IRS and State of California Franchise Tax Board recently.

On Federal, the letter said some penalty was incorrectly calculated so they sent a check back.

On California, TurboTax determined I qualify for excess SDI and FTB said that is not correct, so my refund was reduced by that amount. Also, most likely because of that, the refund was not directly deposited in my account. 

I am wondering why, despite so many checks in the TurboTax desktop step-by-step, that both of those were incorrect. What is the guarantee that the product offers and besides not choosing TurboTax next year, what else do I have at my disposal for these mistakes and how does TurboTax restore trust in their product? 

[VolvoGirl · Accepted solution]

For the federal penalty.  That is common.  The amount Turbo Tax calculates on your 1040 line 38 is only an estimate.  Turbo Tax can not figure it accurately because they don't know exactly when the IRS or state will get your return and tax due payment.  It's very common and normal and expected for the IRS or state to bill you for more or send you a refund.

For California SDI excess.  CASDI is like federal Social Security and Medicare.  It is a mandatory withholding and tax.  If you have more than 1 employer and together the CASDI went over the max you can get the excess SDI back.  And it is for each person.  So if you are married you have to enter each W2 under the right spouse or it will look like 1 person went over the max.  That is a common user error.  

2023 CASDI is 0.90% on a max of  $153,164 of wages. Max is 1,378.48.

[rpmm]

Thanks for the quick and detailed response. 

I was surprised because this is never happened to me and I have been using TurboTax since 1999. Besides, there was no heads up in the TurboTax dialog boxes about potentially seeing a different tax penalty amount, but I could be wrong. 

As for the CA SDI, again, I use TurboTax to guide me. If any of the conditions are not applicable, I expect TurboTax to show me that information so if nothing else, I would not be surprised when FTB comes back with a different calculation. 

[VolvoGirl]

For the Penalty,  before you filed you could have filled out form 2210 to try to reduce or eliminate it or to let the IRS figure it out for you.   Something to remember for next year.  

If you do not pay in enough tax from withholding and estimates, you may have to pay a penalty for underpayment of estimated tax. Even if you are getting a refund you can still owe a penalty for not paying in evenly during the year. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. It is included in your tax due or reduces your refund.

You might be able to eliminate it or at least reduce it. You can go to Federal Taxes tab or Personal tab, under Other Tax Situations and select Start by the Underpayment Penalties. You will answer a series of questions that may reduce or eliminate the penalty. Or you can elect to have the IRS figure the penalty for you. It's form 2210.

It's under

Federal or Personal (for Home & Business Desktop)

Other Tax Situations

Additional Tax Payments

Underpayment Penalties - Click the Start or update button

[VolvoGirl]

For CA SDI,  Turbo Tax doesn't know if you entered something wrong or left something out.  It only guarantees the calculations are correct based on what you entered.  

Did you enter enter both your W2 and your spouse's W2 under one name?  And only enter the CA SDI  from W2 box 14?  (if it was in box 19  you are suppose to move it to box 14).  

Then for next  year if you transfer from 2023 you should delete all the W2s and enter them again manually making sure to assign each W2 to the right spouse so it doesn't happen again.  

[rpmm]

Thanks, I will remember this for next year. But I am still not sure that with everything that TurboTax knows about my filing and estimated tax payments schedule, why would it not remind me to look at that form 2210 in the first place? Even if it is for information only. 

[rpmm]

TurboTax prompted me that I had excess CASDI payments and it included that as part of the refund automatically! I did not calculate it nor did I add it myself. It is something I would not even have noticed if TurboTax had not prompted me to it, so I appreciate that feature. However, FTB did not agree with TurboTax about automatically adding it to the refund and that's where I hold TurboTax accountable. 

[VolvoGirl]

You are married?  And you each have W2s?  As I explained you entered the W2s under the same person.  Turbo Tax wouldn't know if you entered a W2 wrong.  Add up your W2 box 14.  Is it more than $1,378.48?  

Then add up you spouse's W2s.  Is box 14 more?   What are the totals?  How much is on Calif 540 line 74?  

[rpmm]

Yes, I am married. The problem occurred not due to spouse's contributions, but because at some point in the year, my employer name changed and the withholdings restarted without prior knowledge of contributed amounts. 

What I am trying to say is TurboTax should have alerted me about possibly filing a separate form as an option because FTB did not accept what TurboTax asked me to file. 

[VolvoGirl]

There would be no separate form for the FTB for the SDI.  It is usually user error.  

[rpmm]

Ok, is there someone whom I can share my info with to explain what user error I may have made? I answered the questions asked and did nothing fancy otherwise :( 

[VolvoGirl]

Oh, sorry I missed the part you said about your employer.   Did the employer get a new EIN too?  Then it should be ok if you got the excess refunded.  Otherwise you need to get it back from the employer.  Did they only give you 1 W2 or 2?  

[rpmm]

My employer has the payee in the form of "XYZ Paying Agent, Inc. Agent for: ABC LLC" in one W-2 and "XYZ Paying Agent, Inc. Agent for: MMM LLC" in the other W-2. 

Not sure if FTB looked at the Paying Agent name being the same as count it as the same employer and therefore expecting me to get the refund from my employer, or something else. 

My employer flat out refuses to refund either of those two (social security taxes or CASDI) and asked me to talk to IRS and FTB :( 

[VolvoGirl]

Oh yeah there is a  problem with  having the same paying agent.  I don't know how they work that out.  It's usually just for excess SS, haven't seen it about CA FTB sdi.  Someone else will know how to handle that.       

[VolvoGirl]

OK I found a post from this year, hope this helps

https://ttlc.intuit.com/community/taxes/discussion/excess-social-security-multiple-employers-same-ei...