Individual Income Tax Insights: To Err is Human, To Forgive May Have State Tax Consequences


Last summer Justin Bieber asked us “is it too late now to say sorry?” Well Justin, the answer might just depend on if you’re a taxpayer in Vermont or California.  

In Vermont, forgiveness is in the air. Income tax deficiencies for the 2015 taxable year, arising from errors in the calculation of itemized deductions in certain commercial tax preparation software, will not be collected, according to a July 5 Press Release from the Vermont Department of Taxation.

This means that taxpayers who underpaid their 2015 income taxes as a result of this error will have their deficiencies forgiven. Also, taxpayers who have already made a payment to address the deficiency will receive a refund, according to the release. 

Vermont was able to forgive these outstanding tax deficiencies because of the monetary contributions from Intuit and H&R Block, two vendors of commercial tax preparation software. The underlying error that lead to the deficiencies has since been corrected, the release also states.

In California, it is the Franchise Tax Board (FTB) rather than the taxpayer who is asking for forgiveness. In mid-June the FTB apologized to 30,000 taxpayers for making errors in their tax assessment, as reported by Laura Mahoney in Bloomberg BNA’s Weekly State Tax Report. The error was a result of receiving late withholding information from employers and new upgrades automating the state’s assessment system, the article states. 

However, taxpayers in California may be quick to forgive the FTB. For many, California’s apology is also coming with some money. Nearly 90 percent of the taxpayers who were contacted by the state with an incorrect tax adjustment will in fact be receiving a refund, the article added.

With the majority of affected taxpayers in Vermont and California coming out ahead of the game, it looks like it might never too late to say sorry. Someone tell Justin Bieber.

 *Continue the discussion on Bloomberg BNA's State Tax Group on LinkedIn: Should taxpayers be held responsible for technological errors resulting in tax deficiencies?

For more information about tax credits, check out Bloomberg BNA’s Individual Income Tax Navigator by signing up for a free trial of the Bloomberg BNA Premier State Tax Library today.