Taxpayers affected by a glitch with TurboTax and other income tax preparation software do not have to file amended returns with the state.
Two companies have agreed to pay the state after errors in their tax software led thousands of Vermonters to submit incorrect tax returns this year.
Intuit, which runs the software TurboTax, will pay the state $2.38 million. H&R Block will pay $44,000. The state has reached a “handshake agreement” with one other company, and negotiations continue with two others, according to the Tax Department.
Tax Commissioner Mary Peterson said the state estimates it could have lost as much as $2.75 million because of a problem with some tax preparation software.
“We would never expect to recover 100 percent of that,” Peterson said. In general, collections are challenging because it is difficult to track down filers and get amended returns, she said.
Software from Intuit and other companies did not take into account some of the changes to Vermont’s tax code that took effect with this filing season. As a result, between 15,000 and 20,000 people who itemize their deductions underpaid their taxes, according to the Tax Department.
State officials blamed the coding error for some part of a disappointing revenue report in April, a key month for state finances because of the personal income tax filing deadline.
However, Secretary of Administration Justin Johnson said Wednesday that the agreements with Intuit and H&R Block will not affect a shortfall against projections for fiscal year 2016 that he expects will be about $17 million. The money from the agreements will come through in fiscal 2017, he said.
Johnson said a revenue report for the final month of the fiscal year that ended June 30 will be out later this week.
Johnson said “most of” the shortfall against projections came from the poor performance of income taxes in April. But only a portion of that came from the miscalculation. He said the state has been operating on the assumption that the money would not be recouped before the close of the fiscal year.
The administration is still in the process of calculating state expenses for the fiscal year. Those totals will be published later this month, but Johnson said he expects that expenses are also below projections, “so we’ll come out balanced.”
The Tax Department had set a deadline at the end of June for Vermonters affected by the glitch to file amended tax returns. Peterson said the average underpayment was about $130.
However, according to Peterson, recouping the unpaid amounts from taxpayers proved to be logistically difficult. TurboTax does not have an option to electronically file amendments, which meant people who were amending their returns needed to do so by paper. As of the end of last month only about $400,000 had been collected from roughly 4,000 people, Peterson said.
“It was ineffective,” she said. “Taxpayers were really frustrated because the process was onerous.”
Generally, Peterson said, the department holds taxpayers responsible for any failures by their tax preparers. Taxpayers can often seek recourse independently from the preparers, she said. But this case “just was not a normal situation,” she said.
She also said the workload on the department as a result of the error was significant and risked hurting the rollout of the department’s new tax software project, due to go online at the end of the year.
As a result of the payouts from Intuit and H&R Block, taxpayers affected by the glitch do not have to file amended returns. The department will contact those people who have already filed, and their checks will be voided, she said.
A few weeks ago, a representative of Intuit flew to Vermont to discuss the situation, which led to the financial agreement, according to Peterson.
