Issues with ACA and 529 calculations that can lead to incorrect taxes being filed

[emsolari02]

I thought I would try again as the last post generated no response from Intuit.

There are three issues that Intuit needs to be aware of and, hopefully, address prior to next year. Two are ACA related and the other is 529 related. The 529 issue has been in the software for a number of years and, for some reason, has not been addressed. All three  issues, as I can attest, can lead folks down the wrong path and result in the wrong tax calculation or pushback/questions from the IRS. Since there doesn’t seem to be a more-formal “bug” reporting system for Intuit, forums will have to do.

ACA issues:

• TurboTax does not properly fill out form 8962. Specifically, if you have a monthly difference in subsidy (perhaps because you’ve had your estimated income adjusted), TurboTax does not fill out Part II lines 12 thru 23. This is even though when you go thru the interview process, it asks if any months were different and asks you to fill in each amount, per month, from the 1095-A. This frankly makes no sense. Yes, the IRS rejected my return because of this, and I had to manually regenerate the form and fill in Part II. This is not a UX issue – it is a bug.
• TurboTax does not consider the income thresholds when asking if dependents have filed a return. The IRS uses dependent incomes for the ACA’s MAGI computation but only if the (individual, not cumulative) dependents had incomes greater than the IRS’s threshold of $15,000.00.  TurboTax only asks if dependents filed a return and then blindly adds the total amount to the MAGI. In our case, none of our three children were anywhere close to $15K but each filed a return to get back a small amount of withheld taxes. The UX here needs to be changed to clearly communicate that answering yes is one thing, needing to file a return (and having it count against MAGI) is another. TurboTax has conflated "filed a return" and "has MAGI-relevant income." A family whose dependents file returns solely to recover withheld taxes — a common and correct thing to do — could easily end up with an inflated MAGI, a reduced subsidy calculation, and a surprise tax bill. Yes, this happened to us but we caught it before filing.

529 issue:

• TurboTax assumes all withdrawals noted on a 1099-Q are non-qualified unless the withdrawal is explicitly called out. TurboTax asks if a 1099-Q was received. If you answer “yes” it assumes the amounts were non-qualified but no where in the experience does it tell you to list each expense individually. Further, it ignores the fact that 1099-Q reporting is optional if all withdrawals were qualified. The interview should be amended to something like:
  1. “Did you receive a 1099-Q”
  2. “Were any of those withdrawals non-qualified?”:
     1.       Yes -- take the user to the part of the experience where those expenses can be listed.
     2.       No – tell the user “Congrats – you don’t need to report the 1099-Q because all your expenses were qualified!”

The practical result is that qualified withdrawals get treated as taxable income, generating an incorrect tax liability. We were stung by this for our 2024 taxes and are still fighting with the IRS for an adjustment.

[Vanessa A]

I would like to take a deeper look at this. However, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the directions below:

TurboTax Online:

1. Sign into your online account.
2. Locate the Tax Tools on the left-hand side of the screen.
3. A drop-down will appear. Select Tools
4. On the pop-up screen, click on “Share my file with agent.”
5. This will generate a message that a diagnostic file gets sanitized and transmitted to us.
6. Please provide the Token Number that was generated in the response.

TurboTax Desktop/Download Versions:

1. Open your return.
2. Click the Online tab in the black bar across the top of TurboTax and select “Send Tax File to Agent” *
3. This will generate a message that a diagnostic copy will be created.  Click on OK and the tax file will be sanitized and transmitted to us.
4. Please provide the Token Number  (including the dash) that was generated in the response.

*(If using a MAC, go to the menu at the top of the screen, select Help, then, “Send Tax File to Agent”)

[AmeliesUncle]

---

@emsolari02 wrote:

• TurboTax does not properly fill out form 8962. Specifically, if you have a monthly difference in subsidy (perhaps because you’ve had your estimated income adjusted), TurboTax does not fill out Part II lines 12 thru 23. 

• TurboTax does not consider the income thresholds when asking if dependents have filed a return. The IRS uses dependent incomes for the ACA’s MAGI computation but only if the (individual, not cumulative) dependents had incomes greater than the IRS’s threshold of $15,000.00.  TurboTax only asks if dependents filed a return and then blindly adds the total amount to the MAGI.

That is not an error; varying Advance Credit amounts do not trigger the requirement to use line 12-23.  See the Instructions for line 10 of Form 8962.

https://www.irs.gov/instructions/i8962#en_US_2024_publink100014008

I think it used to be buried somewhere in the 'learn more' links, but you are right, even if it is hidden there somewhere it needs to be more obvious.  As a side note, it isn't always strictly limited to income over $15,750.   If a child dependent has a certain amount of "unearned" income (interest, dividends, capital gains, taxable scholarships, etc.), they may be required to file a tax return for less than $15,750, which could also trigger the need to enter their income for the Premium Tax Credit on Form 8962.

[emsolari02]

Perhaps. But the IRS stung us for this -- they explicitly called out the fact that 12 thru 23 were not filled out and rejected; asked us to provide it again with those fields filled out.

And yes, I understand the threshold constraints. However, the point still stands -- the UX simply asks "Did you have a dependent that filed a tax return?". It then follows up the question with "how much was their income?" or something similar. We have 3 children. Individually, none were over the threshold. Collectively, the summation significantly impacted our MAGI. We caught it. The UX needs to be clearer here. It's an "easy" fix (as easy as fixing SW can be...). 

[emsolari02]

I am happy to provide this. Thanks very much!!