Your Tax Credits: Filing Errors Increase IRS Workload

Recovery Act tax creditsConfusion over two key Recovery Act tax breaks – “Making Work Pay” and the homebuyer tax credits – have created a bigger workload for the Internal Revenue Service.
The two tax credits can make a significant difference for taxpayers facing today’s filing deadline.
Making Work Pay provides $400 to individuals and $800 to couples, while the first-time homebuyer tax credit is worth up to $8,000, and the expanded credit for repeat homebuyers up to $6,500.
“Taxpayers incorrectly calculating the Making Work Pay Credit and/or not providing documentation for the First-Time Homebuyer Credit have significantly increased error workloads,” according to an interim filing season report by the U.S. Treasury Inspector General for Tax Administration.
The report said the IRS “recognized the difficulty taxpayers may have in claiming new credits and/or deductions” and created new forms, schedules, and instructions. The IRS also developed programming to identify taxpayers “who may not have claimed credits to which they were entitled at the time they filed their tax returns.”
Here’s the overview of the two most common errors:
Making Work Pay Tax Credit
Individuals are incorrectly claiming the Making Work Pay Credit when also receiving the $250 Economic Recovery Payment. The $250 checks were sent to individuals receiving Social Security retirement and disability, and Veterans and Railroad Retirement benefits.
Individuals still working in 2009 are also eligible for the Making Work Pay Credit of $400 per worker, but must reduce the $400 by the $250 payment and calculate their Making Work Pay Credit on Schedule M.
In response to taxpayer confusion, the IRS is providing a lookup tool, Did I Receive an Economic Recovery Payment?  It gives taxpayers an easy way to determine if they received the one-time Economic Recovery Payment.
Homebuyer Tax Credits
To reduce fraudulent claims received in the 2009 filing season, taxpayers claiming the first-rime homebuyer credit are now required to provide documentation, such as the Settlement Statement (Form HUD-1) to support the claim for the Credit.
If you are claiming the new long-time resident credit – worth up to $6,500 – the same documentation is required along with paperwork, such as the Mortgage Interest Statement (Form 1098), property tax records, or homeowner’s insurance records for a five consecutive-year period.
“The IRS expects a 50 percent correspondence rate based on the tax returns submitted to date because the taxpayers failed to submit the settlement statement or submitted the wrong documents,” the Treasury inspector general’s report said.
Last year’s American Recovery and Reinvestment Act “created a full slate of tax breaks, which can be claimed on tax returns right now,” the IRS said. These include:

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