e-file rejection error code F1040-071-07

[domerdoc]

I'm a volunteer preparer at a low income site which uses a different software.  However, I've been a TT user for 30 years starting when it was Chipsoft.  My question has to do with this error code, which has to do with withholding payments > total income.  Apparently this has been an ongoing IRS problem for several years with workarounds as noted in several forums, including for Drake and ATX professional software firms.  Could not find any references in TT Community as to what triggers this error.  A client had no taxable income from SSA and small pensions, but with fairly large withholding amounts all to be refunded.  She also had Medicaid Waiver payment not taxable but reported on 1099NEC and negated as per instructions by adding a negative value in Other Income.  Has anyone an explanation as to why this rejection code occurs when the premise is incorrect (withholding is not greater than total income).

[RobertB4444]

It's a fraud prevention tool.  It's also an easy mistake to spot.

Withholding has to be withheld from something.  On the 1099-SA there is social security income that taxes can be with held from even if it's not taxable.  

If your W2 has no amount in box 1 there should be an amount in box 3 and 5.  Otherwise, the with holding shouldn't be done on that form.  It should be made as an estimated payment.  

The same with a 1099-NEC.  If there isn't any income on there then the withholding shouldn't be on there.

@domerdoc 

[domerdoc]

I should have been more clear on my post - the withholding amounts were from 1099-Rs from 2 small pension amounts, which should have been accepted for refund.  The withholding amount was not greater than her pension income which was included in her total income and AGI.  So my question remains - why the rejection when the IRS premise for the rejection was incorrect?

[AliciaP1 · Accepted solution]

It's actually an error in the IRS system for accepting e-filed returns that has not been corrected yet. See Known Issues and Solutions to see when the issue is corrected.

@domerdoc

[domerdoc]

Alicia, thank you for the reference.  According to the known issue, the reject occurs when withholding is reported for an entry in 1040 line 1g or 1h.  In my query, the only withholding is for entry for pensions line 5a/5b.  Apparently this has been an issue with the same reject code in previous years.  Taxpayer had same entries on prior year returns without problem, so must be related to the expanded income lines.