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Oregon federal tax subtraction is incorrect

Forum|Forum|5 years ago
January 17, 2021
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Previously I indicated that the federal tax subtraction for 2020 on the Oregon return is incorrect, because only the first stimulus was reducing the amount of the federal tax subtraction. I believe this is a bug in the program, because when I indicate that I did NOT receive the second stimulus (and therefore should be credited on the federal return), then the second stimulus DOES get subtracted on the Oregon return. But if I indicate that I HAVE already received the second stimulus, then there is no subtraction on the Oregon return. This does not seem like a problem with an update, but rather a bug. So let me be specific: The amount showing for the second stimulus received (line 19 on the Recovery Rebate Credit Worksheet), while it SHOULD reduce the 2020 federal tax liability subtraction on Oregon Form 40 (line 10), it DOES NOT. Can someone report this for me to the people who fix these things or let me know how I can tell them? I don't see any workaround without getting hit with errors in the program.

ProSeries Basic

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Best answer by cinmon428

Keep trying. That course was put together December 14 -- they must have done a very fast edit after the bill was signed December 27. Could be that a Tax Auditor 2 making $77,000 is the expert. But maybe not.

Good afternoon

For the Federal Tax subtraction calculation you would want to include both the first and second stimulus payment. Although the second stimulus payment was issued in the year 2021, the way the legislation was passed it’s intended to be a credit that affects the 2020 tax period and would therefore be used in the Oregon Federal Tax subtraction calculation for the 2020 return. Our e-filing coordinators have clarified this matter with the tax software vendors and asked they update their forms to correctly calculate this subtraction, the tax software companies should be updating their programs accordingly.

Thank you

Our response is based on the information you included in your e-mail. If your situation or facts change, or you need more information, please contact the Department of Revenue again.

Best Regards,

Crisel

Tax Practitioner Specialist

Oregon Department of Revenue

Office: 503-947-3541

503-378-4988

Fax: 503-945-8736

Email: [email address removed]

Data Classification Level 3 – Confidential

George4Tacks

Level 15

@IntuitBettyJo will pass this one for you.

Answers are easy. Questions are hard!

C

cinmon428Author

Level 6

Much obliged!

BobKamman

Level 15

It’s always dangerous to follow the instructions, but what Oregon tells you is:

“Enter the tax rebate (economic stimulus payment) you received from the federal government in 2020 [emphasis added] plus your recovery rebate credit, if any (Form 1040 or 1040- SR, line 30).”

This amount is subtracted from 2020 actual tax, so it reduces the federal tax deduction (FTD).

So if EIP#2 was not received, it will result in a recovery rebate credit, and a lower FTD.

If it was received, it would have been in 2021, not in 2020, so there is nowhere it needs to be entered.

Isn’t this what you are saying the program does? If so, where is the error? Always remember, don’t expect taxes to be logical.

C

cinmon428Author

Level 6

I do see your point and I have asked for a ruling by Oregon about that. But as you say, instructions are not always to be believed. The instructions you quote were undoubtedly made before the second stimulus came out, and therefore the need for the ruling.

C

cinmon428Author

Level 6

Now go to the worksheet on Page 13 of the Form OR-40 instructions and fill it out according to your hypotheticals.

Although most items of income and deduction are calculated on the cash basis, Oregon uses accrual basis for the federal tax deduction. Fill out the worksheet for a single person with $100,000 income who owes $1,000 in federal tax and has paid nothing by December 31. The deduction is still $1,000, right? EIP’s have nothing to do with it.

What happens in 2020, stays in 2020. The recovery rebate credit was enacted in 2020. If some of it is used on the 2020 return, it reduces the deduction on the 2020 return. If some of it accrued in 2021, wait till next year and there will be a place to make that adjustment.

Intuit programmers have enough to do for the rest of us, without falling down this rabbit hole.

The deduction is still $1,000, right? EIP’s have nothing to do with it.

This has nothing whatsoever to do with the issue. We are talking about the Oregon Federal Tax Subtraction and how the EIP and/or the Rebate received on the tax return affects it. And although the second stimulus EIP DOES NOT affect it on Proseries and Turbo Tax (and I believe Oregon will tell me that it should), the Rebate for the second stimulus (ie when you request a credit on the return) DOES cause a reduction to the Federal Tax Subtraction. Try it before you respond and you'll see I'm right. And this is a problem. It's a problem that the "software people" are required to fix.

climbon05

Level 2

Hi...I don't mean to beat a dead horse here but I want to be sure I understand something. Prior to inputting my simuls I had a refund both fed & state. Post entering my stimulus: Fed unaffected as I would expect, State I now owe. I noticed after inputting the $1200 stimulus as the software requested I am now in a "owe" situation. Is it true this is somehow taxable by the state?
OR Fed Tax Liab Subtraction Worksheet:
Fed Tax Liab 5,839
Recover Rebate Credit 1,200
Subtract 9 from 5 4,639
Max allowed 6,950
Smaller of 10 or 11 4,639
Can someone help me understand why this is taxable? Why it is reducing the fed liability that ends up increasing my taxable income? I was under the impression the stimulus was not taxable...but maybe OR Dept of Rev believes differently from IRS (Fed)?
Thank you for any explanation someone can give.

George4Tacks

Level 15

I think much of the confusion lies around what the name is. Although none of Economic Impact Payments made were taxable, they are Recovery Rebate Credits that do reduce the federal income tax for 2020. Just like a refund of 2019 federal tax during tax year 2020 would reduce federal tax. Oregon is a bit hinky among the states in using federal tax as a deduction. I believe Lacerte got it right.

When all else fails, read the instructions page 13 🎠

Answers are easy. Questions are hard!

J

Jerri 11

Level 3

Is there any information on WHEN the ProSeries software will be corrected to include the 2nd stimulus in the calculation for Oregon Tax? Why don't they just do the same thing they did for the Lacerte software and make it a calculation on the Federal Tax Subtraction in the Oregon return?

C

cinmon428Author

Level 6

I must have spent 10 hours complaining until I was blue in the face and still no change. But you can uncheck the box to "check for errors" when you efile and the return will go through to Intuit even though there is an error message that you overrode the amount they show.