Why was my TurboTax e-file rejected by the IRS with Reject Code F8960-019-04?
THIS IS NOT A TURBOTAX ISSUE!
REPEAT, THIS IS NOT A TURBOTAX ISSUE!
ONCE MORE, THIS IS NOT A TURBOTAX ISSUE!
The IRS has confirmed a “Known Issue” in their systems which causes valid e-filings to be erroneously rejected. The issue can affect anyone filing Form 8960, regardless of which tax prep service you use.
From the IRS spreadsheet of 2022 "Known Issues":
Business Rules F8960-019-04 and F8960-003 may cause returns to erroneously reject. These business rules need to be modified to reflect the updates to the Instructions for Form 8960 (Tax Year 2022) regarding the Specific Instructions for Line 4a to include Schedule C (Form 1040) amounts reported on Schedule 1 (Form 1040), line 3 and Form 1041, line 3.
Only the IRS can fix this issue!
When will I be able to e-file my taxes? How will I know when the issue is fixed?
You may not be able to e-file until sometime between late February to mid-March 2023. There is no other answer. You must wait until the IRS fixes a known issue in their systems! Be patient!
From the latest IRS’s 2022 “Known Issues” spreadsheet (Row 74),: “Business Rules will be updated sometime in late February to mid-March 2023.”
I'll update this post when we know the issue is fixed, but the best way to know is to check the spreadsheet on the IRS’s website from time to time to see if there have been any updates.
Or you can sit for a notification from TurboTax that may never come...
But I know this is a TurboTax problem, not an IRS problem! I have the evidence…
Your evidence is wrong. The IRS says this is an IRS problem.
Open the IRS’s 2022 “Known Issues” spreadsheet and read Row 74.
TurboTax stinks! I’m going to use H&R Block, TaxAct, FreeTaxUSA, etc.
MANY, MANY users of TaxAct, H&R Block, FreeTaxUSA, and other tax prep services are reporting the exact same erroneous rejection. If you’re receiving this rejection code with TurboTax, your ability to e-file will NOT be different with another tax prep service.
The problem is an IRS “Known Issue” – it is not a problem with any specific tax prep service.
But I just filed with H&R Block (or "H&R Block just accepted my return")
Are you sure your return was accepted by the IRS? Just because H&R Block didn't throw an error/rejection does not mean the IRS has accepted your return!
Is the status of your filing "pending" or "accepted"? If the status of your filing is "pending" then you have not filed and your return is not "accepted" by the IRS.
If your return status is "accepted," check Line 4b of your Form 8960 on H&R Block. Is it $0? If so, compare your H&R Block Form 8960 Line 17 with your TurboTax Form 8960 Line 17. Does H&R Block show that you will be paying a higher "Net investment income tax for individuals"?
If Line 4b is $0, you may be paying an additional 3.8% in taxes on Schedule C "non-passive income" that you are not required to pay! See note for H&R Block users further down in this post.
A TurboTax employee told me to delete Form 8960, or change Line 4a/4b to $0, and then try to e-file again
Sadly many TT employees don't seem to know what they're talking about. Any advice other than, "You must wait for the IRS to fix the issue" is bad advice. It is very likely that your Form 8960 has been filled in correctly by TurboTax. The problem is probably not with your Form 8960.
If I can’t e-file now, I'll just file my return by mail
This is probably a very, very bad idea!
Paper filers are experiencing extraordinary delays - of two years or more – for getting their returns processed and refunds issued. Don’t you think it’s a better idea to be patient and wait until the IRS fixes this particular problem?
Why is TurboTax filing Form 8960? I don’t have rental income (or any other reasons you think you don’t need this form)
The error code “NetRentalIncomeOrLossAmt” from your rejection notice is misleading - it is not a literal description of what Form 8960 is used for. Do not take it literally!
In all likelihood, TurboTax is including Form 8960 because you are required to file Form 8960!
According to the 2022 Form 8960 instructions from the IRS (page 1), you are REQUIRED to file this form if your MAGI (generally the same as AGI, found on Line 11 of your 1040) exceeds one of the following thresholds:
- Married Filing Jointly or Qualifying Widow(er) is $250,000.
- Married Filing Separately is $125,000.
- Single or Head of Household is $200,000.
If Line 11 of your 1040 exceeds the amount above, you MUST file Form 8960.
Why is my Schedule C income/loss included on Line 4a? That’s not rental income!
TurboxTax is completing Form 8960 correctly!
Repeat, TurboxTax is completing Form 8960 correctly!
TurboTax includes your Schedule C income on Form 8960 Line 4a because the IRS instructions for Line 4a (page 6) say you must include your Schedule C income on Line 4a. This is a new requirement as of TY2022, and the IRS's failure to update its systems with this new requirement is why your return was rejected.
Also note, any non-passive portion of that income/loss should be subtracted on Line 4b (see page 6 of the IRS instructions). Any Schedule C income/loss is “non-passive” if it is from a business in which you actively participate. If your non-passive income is NOT deducted on Line4b, you will pay the 3.8% Net Investment Income Tax (NIIT) on the Line 4a amount even though it is not subject to the NIIT.
H&R Block users should read the special note at the bottom of this reply.
TurboTax stinks! “I want a refund” or “I’m calling my credit card company to reverse the charges”
First you should ask yourself these questions:
- Do I understand that users of all tax prep services (H&R Block, TaxAct, FreeTaxUSA, et.al.) are getting the same rejection because the IRS has not fixed this “Known Issue” with IRS systems?
- Do I really want to re-enter my tax data with a different tax prep service when I am likely to be rejected there as well?
- If I get a refund from TurboTax, what tax prep service am I going to use to file my 2022 taxes?
Attention H&R Block Users
There are anecdotal reports that H&R Block software is not subtracting non-passive income on Line 4b, which may result in a 3.8% Net Investement Income Tax (NIIT) being levied on your Schedule C income when that income is not subject to this tax.
