IRS Notification

[zulaatax]

The IRS sent me a letter stating that my Sch 1 and Sch 2 contain missing or incomplete information. However, I had only 2 docs in the 2023 tax season -1099 NEC and a 1095A, leading me to believe that my schedule 1,2 is complete and correct. I filed a single return since my husband and son, who don't have ITINs were not included on the tax return, but were insured by my policy (1095-A). My family didn't use this insurance even though we had it.

The IRS letter doesn't have a question about my Form 8962 entries. I guess this might be the reason the IRS notified me that I must complete Schedule 2. Does that impact my ability to return? If yes, how should I proceed?

[Opus 17]

Well, if you are married, you must file as married filing separately or married filing jointly.  You can't file as single.  If your spouse and child are US residents (pass the substantial presence test, even if they are not "legal") then you can file jointly and include your child as a dependent.  You would apply for the ITIN as part of the tax return.  (Your child gets a reduced dependent credit if they don't have a valid SSN, but you can still list them as dependents.)   Joint filing usually results in lower taxes than married filing separately or filing as single, assuming your spouse does not have taxable income. 

Also, you can't cover someone on your insurance unless they are your spouse or tax dependent, so that may have raised a red flag, if you filed as single with no dependents.

I don't exactly what triggered the letter for schedule 1 and 2, whether it was this issue or something else, but you definitely need to file an amended return as married with your dependent and apply for the ITINs.  You may want to consult with a tax professional.  If not, we can lead you through the steps necessary.

[zulaatax]

Thank you very much for your information. I filed as a single cause my husband and son didn't have ITINs when I filed my return in April, but my health insurance (1095-A) covered my husband, me, and my son. 

Now, to resolve my problem, I will apply for the ITINs and file an amended return (joint return) with my husband and son. Based on the number of days that my son and spouse have been in the country, they are considered U.S. resident aliens or/and permanent residents. 

Given that my spouse has no taxable income, may I claim him as my dependent? I've read that the Health Insurance Marketplace allows people to sign up for health insurance plans even if they don't have an SSN or ITIN. Even so, do I still have to pay some money back (of my 1095-A form), mean will 1095-A impact my return? What are the drawbacks of keeping my initial return and making no changes, in other words, not amending my return? I apologize for the foolish question I posed. Will I owe money? 

[Opus 17]

A spouse is NEVER a dependent.

You can't keep your return as single.  If you are legally married, you must file using one of the married filing statuses.  It's simply illegal to file as single.  And, you probably lose the health insurance subsidy.  You need to fix this correctly and legally.

The first question is, did they meet the substantial presence test as of December 31, 2023?  (Not now, August 2024, but as of December 31, 2023 for tax year 2023).

• If they did meet the substantial presence test for 2023, you had the option to file jointly (married filing jointly).  List your spouse and dependent.  Include a form W-7 ITIN application for each person.  Mail the tax return and the W-7 applications to the address for processing ITINs, not the usual address for tax returns (and don't e-file).  After the IRS issues the ITINs, they will process the tax return.
• If they did not meet the substantial presence test for 2023, then you have two options.
  • A. File as married filing separately, and leave them off your return.  This will probably negatively affect your insurance subsidy, but I don't know how much.
  • B. File as married filing jointly by making the election to treat your spouse as a resident.  Follow the procedure above to get ITINs.  

Because you are using the insurance subsidy, I think you need to file as married filing jointly, either because your spouse and child met the substantial presence test, or by making the election to treat them as residents for tax purposes even if they did not pass the test for 2023.

Since you have an assessment letter from the IRS, you can't just file an amended return.  And you need to respect any deadlines in that letter.

My suggestion is to prepare a joint return (married filing jointly).  You can list your spouse and your child.  Your spouse is never a dependent, any tax benefits you get come from claiming a spouse and using the married tax rates.  You may need to use a fake ITIN to get through the Turbotax amended return interview.  Try 999-88-9999 and 999-88-8888.  Before mailing the return, use some white-out to cover the fake ITIN and write "ITIN applied for."  Prepare two applications for ITIN on form W-7, for your spouse and your child.  Be sure to include any documents or proofs required.  Mail the entire package to the IRS address for processing ITINs.  Use a mailing service that includes tracking and proof of delivery.

Then, send a copy of the amended return to the office that sent the deficiency notice, along with a letter of explanation that you recognize you made a mistake and have filed an amended return to fix it.  That should stop any questioning of the subsidy until after the amended return is processed.

You may even get a tax refund, since the tax rates for married are a bit lower than single and you said your spouse doesn;t have income to report. 

[zulaatax]

Thanks a lot. I appreciate the help you've given me. My understanding is that to process ITINs, I must first submit my return with my family, apply for the ITINs, and mail the full package (including the other documents) to the IRS address. The IRS letter deadline is September 20, 2024. ITIN processing will take place in 7 weeks. Since I will be receiving my husband's and son's ITINs after the IRS letter deadline, I'm not sure how this will impact me.  
Then I have to file my amended return and mail it, along with a letter of explanation, to the office that delivered the deficiency notice after the ITIN is received. 

[Opus 17]

No, send the ITIN applications together with the tax return -- one package with all the documents at the same time.  The IRS will issue the ITINs and then will process the amended return.  The ITINs will likely take a few weeks and then the amended return will probably take 16-20 weeks to process, amended returns are really slow.

That's why you also need to send a copy of the amended return along with a letter of explanation to the office that sent the notice.  You need to let them know what you are doing, and that you are in the process of correcting your mistake, but the timing is up to the IRS.  (Maybe include a copy of your proof of mailing too.)

Normally, when you want to fix an issue from a letter by amending, you would send the amended return directly to the office that sent the notice, instead of the normal address.  The problem here is the added complication of the ITINs.  So I think the best course is to send the entire package off to Austin Tx, tax return and applications together.  (You need to include the tax return because the IRS won't issue an ITIN without proof of a financial connection to the US, and your marriage and joint tax return is what creates the financial connection.)

You could possibly try to work through a taxpayer acceptance center or acceptance agent.  But I think the mail will be ok.  But you need to send an explanation and a copy of everything you are doing to the office that sent the notice so they can pause their action until the amended return is processed and they can see if the 1095 matches the new information. 

You may want to see a tax professional if you are still worried about the process. 

[zulaatax]

Many thanks. I'm okay to do the things you mentioned to me. All I was concerned about was the timing and whether or not my family members' ITINs would be accepted.

I reached out to the taxpayer acceptance center and was able to schedule an appointment for October 10. Since it's too late, I'll take care of everything and mail my documents myself. Thank you again. 

[dmertz]

Was Schedule 2 present in your filed tax return?  The Form 1099-NEC suggests that you have income from self-employment that would generally require self-employment tax to be present on Schedule 2 line 4.

[zulaatax]

Yes, Schedule 2 was presented in my filed tax return. Income reported on Form 1099-NEC is subject to SE taxes.  

[zulaatax]

I filed my state and federal tax returns as a single in April, and I paid $xxxx for the federal filing. I'm currently mailing my application for my husband's and son's ITINs by filing again as a joint return with them. Does this mean I would have to pay again for the federal return when I mail my application to the IRS for my family members' ITINs, and then for my amended return?

[Opus 17]

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@zulaatax wrote:

I e-filed my state and federal tax returns as a single in April, and I paid $2,505 for the federal filing. I'm currently mailing my application for my husband's and son's ITINs by filing again as a joint return with them. Does this mean I have to pay for the federal return again?

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Don't prepare a new return.  Prepare an Amended return.  This is a different procedure.  

An amended return starts with the return already filed, and then makes whatever changes are needed.  In your case, those changes include changing from single status to married filing jointly, adding your spouse and your son as a dependent.  At the end, you will print out the amended return which includes a new copy of form 1040 and any other forms with changes, plus a form 1040-X which acts as a cover page that summarizes the changes.  The amended return will recalculate your tax based on your new situation, and you will get credits for any payments that you already made.  If the amended return results in more tax owed, you just pay the difference, and if the amended return results in less tax owed than you already paid, you will get a refund of the difference. 

You may be offered the chance to e-file the amended return.  You should decline, because you are going to mail the amended return and the two ITIN applications to the IRS instead of e-filing. 

Here are some more instructions. 

https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-return/amend-federal-tax-return-curr...

https://turbotax.intuit.com/tax-tips/amend-return/how-to-file-an-amended-return-with-the-irs/L6kO691...