IRS disagrees with my submitted schedule SE.

[hmw]

Hi BHs,

I received a notice from IRS today. I went over the issue raised, and I think I was correct.

I had W2 income and 1099 income in 2023. My W2 income was higher than $160,200.

I used H&R block to calculate my taxes but did paper filing.

My net profit from schedule C (1099 income) was $92815.

I reported self-employment tax (line 12 on schedule SE) as $2486. 92814 x 0.9235 x 0.029= 2486. I believe that since I paid the maximum social security tax on my W2 income, I would only have to pay 2.9% medicare tax. H&R block did all the calculation, and I think it was correct.

IRS notices says the correct entry should $13114. (13114/85715=15.3%)

I don't see how I should be paying 15.3% on my 1099 income when I already paid the max social security tax on my W2 income.

What do you think? Did I miss anything?

I called the IRS number listed on the notice and of course I couldn't get a live person on the phone.

Thanks

[nalor511]

Keep calling at different times, you can absolutely reach a human.

[jebmke]

Normally if I believe their letter is incorrect, and it does happen, I send them a reply in writing explaining why their letter is wrong. Eventually they send me an "OK" response and it is done.

Most IRS letters have a date by which a reply is needed so I do it right away, send it with some form of Proof of Delivery required and move along.

[hmw]

Normally if I believe their letter is incorrect, and it does happen, I send them a reply in writing explaining why their letter is wrong. Eventually they send me an "OK" response and it is done.

Most IRS letters have a date by which a reply is needed so I do it right away, send it with some form of Proof of Delivery required and move along.

The notice didn't state a deadline for a response.

I will write a letter to IRS.

Anyone thinks IRS was correct, and I was wrong?

[CAsage]

Any remote chance the SS withholding on your W-2 didn't get credited somehow? Can you get a transcript/report from either SS or the IRS on what data they have? Fishing for an error ... but you seem on track.

[jebmke]

Normally if I believe their letter is incorrect, and it does happen, I send them a reply in writing explaining why their letter is wrong. Eventually they send me an "OK" response and it is done.

Most IRS letters have a date by which a reply is needed so I do it right away, send it with some form of Proof of Delivery required and move along.

The notice didn't state a deadline for a response.

I will write a letter to IRS.

Anyone thinks IRS was correct, and I was wrong?

That's unusual. They normally give you 30 days to respond or pay from the date of the letter. Often that gives you about 20 days to respond given the time the letter is delivered to you.

[FiveK]

What do you think? Did I miss anything?

No way to know without knowing all the non-zero entries on your Schedule SE.

[Miakis]

This is why you e-file.

When you paper file, an actual person keys your forms into a computer and often makes data entry errors. That person knows nothing about taxes and doesn’t care if the notice they’re about to send you is wrong and destined to waste your time and money.

So is the IRS wrong? Probably.

When you e-file, it’s just computers talking to computers. H&R Block’s software (like all major tax prep software) is approved to fit data into the IRS’ e-file schema and the IRS trusts it to be correct. No error-prone humans involved. Except you.

[jebmke]

Any remote chance the SS withholding on your W-2 didn't get credited somehow? Can you get a transcript/report from either SS or the IRS on what data they have? Fishing for an error ... but you seem on track.

This would also be on the W2 that was attached to the return so I would include a copy of this in my reply to tie to the W/H shown on the 1040.

[hmw]

This is why you e-file.

When you paper file, an actual person keys your forms into a computer and often makes data entry errors. That person knows nothing about taxes and doesn’t care if the notice they’re about to send you is wrong and destined to waste your time and money.

So is the IRS wrong? Probably.

When you e-file, it’s just computers talking to computers. H&R Block’s software (like all major tax prep software) is approved to fit data into the IRS’ e-file schema and the IRS trusts it to be correct. No error-prone humans involved. Except you.

I couldn't efile because H&R block couldn't handle Section 199A dividend credit calculations.

[hmw]

Any remote chance the SS withholding on your W-2 didn't get credited somehow? Can you get a transcript/report from either SS or the IRS on what data they have? Fishing for an error ... but you seem on track.

This would also be on the W2 that was attached to the return so I would include a copy of this in my reply to tie to the W/H shown on the 1040.

Will enclose a copy of my W2 which clearly showed that I paid $9932.40 in social security tax in box 4.

[toddthebod]

Any remote chance the SS withholding on your W-2 didn't get credited somehow? Can you get a transcript/report from either SS or the IRS on what data they have? Fishing for an error ... but you seem on track.

This would also be on the W2 that was attached to the return so I would include a copy of this in my reply to tie to the W/H shown on the 1040.

Will enclose a copy of my W2 which clearly showed that I paid $9932.40 in social security tax in box 4.

Share your entries for lines 8-10.

[hmw]

Any remote chance the SS withholding on your W-2 didn't get credited somehow? Can you get a transcript/report from either SS or the IRS on what data they have? Fishing for an error ... but you seem on track.

This would also be on the W2 that was attached to the return so I would include a copy of this in my reply to tie to the W/H shown on the 1040.

Will enclose a copy of my W2 which clearly showed that I paid $9932.40 in social security tax in box 4.

Share your entries for lines 8-10.

8a 160200
8b blank
8c blank
8d blank
9 blank
10 blank

[toddthebod]

Any remote chance the SS withholding on your W-2 didn't get credited somehow? Can you get a transcript/report from either SS or the IRS on what data they have? Fishing for an error ... but you seem on track.

This would also be on the W2 that was attached to the return so I would include a copy of this in my reply to tie to the W/H shown on the 1040.

Will enclose a copy of my W2 which clearly showed that I paid $9932.40 in social security tax in box 4.

Share your entries for lines 8-10.

8a 160200
8b blank
8c blank
8d blank
9 blank
10 blank

8d should be 160,200. There's your problem.

[Hyperchicken]

8d should be 160,200. There's your problem.

I see where you are going with this, but line 8a instructions in the form do say this -

If $160,200 or more, skip lines 8b through 10, and go to line 11

https://www.irs.gov/pub/irs-pdf/f1040sse.pdf

[tibbitts]

This is why you e-file.

When you paper file, an actual person keys your forms into a computer and often makes data entry errors. That person knows nothing about taxes and doesn’t care if the notice they’re about to send you is wrong and destined to waste your time and money.

So is the IRS wrong? Probably.

When you e-file, it’s just computers talking to computers. H&R Block’s software (like all major tax prep software) is approved to fit data into the IRS’ e-file schema and the IRS trusts it to be correct. No error-prone humans involved. Except you.

I couldn't efile because H&R block couldn't handle Section 199A dividend credit calculations.

The 199A for REIT income? You must be doing something different with it because it seemed like it worked okay for me.

[toddthebod]

8d should be 160,200. There's your problem.

I see where you are going with this, but line 8a instructions in the form do say this -

If $160,200 or more, skip lines 8b through 10, and go to line 11

https://www.irs.gov/pub/irs-pdf/f1040sse.pdf

Ha! Never mind. I saw line 8d instructions saying to add lines 8a-8c...

[secondcor521]

Someone alluded to it earlier, but you are required to attach any W-2 showing withholding to a paper filed return. Did you do so?

I haven't paper filed a return in years, but last I did I would cut out the correct copy of the W-2, then staple it midway down the left side of the front of the Form 1040. Things might have changed since then.

[Asyouwish]

Sounds like a CP12 (?) math error notice. The IRS made the changes which is why there is no response date. There should be instructions for submitting a disagreement. I would submit the Schedule SE along with the W-2 and Schedule C. Attach a cover letter that you believe your Schedule SE is correct and ask to have the math error reversed.

If you are curious, you can create an account log in. View your “return transcript”. This will be a line by line data transcription of your return with both your entries and the IRS data entries. You may be able to pinpoint the line number where the discrepancy is. It could be a data transcriber error when the return was hand typed. Or it could be an error on your schedule.

[hmw]

Someone alluded to it earlier, but you are required to attach any W-2 showing withholding to a paper filed return. Did you do so?

I haven't paper filed a return in years, but last I did I would cut out the correct copy of the W-2, then staple it midway down the left side of the front of the Form 1040. Things might have changed since then.

I did not attach a copy of my W2. I always thought that IRS has a copy of my W2. Will attach a copy with my response letter.

[jebmke]

Someone alluded to it earlier, but you are required to attach any W-2 showing withholding to a paper filed return. Did you do so?

I haven't paper filed a return in years, but last I did I would cut out the correct copy of the W-2, then staple it midway down the left side of the front of the Form 1040. Things might have changed since then.

I did not attach a copy of my W2. I always thought that IRS has a copy of my W2. Will attach a copy with my response letter.

The instructions for paper filing are to attach any forms like W2 and 1099 if they report any withholding on them. In fact, those instructions are printed right on the left side of page 1 of the 1040

[hmw]

This is why you e-file.

When you paper file, an actual person keys your forms into a computer and often makes data entry errors. That person knows nothing about taxes and doesn’t care if the notice they’re about to send you is wrong and destined to waste your time and money.

So is the IRS wrong? Probably.

When you e-file, it’s just computers talking to computers. H&R Block’s software (like all major tax prep software) is approved to fit data into the IRS’ e-file schema and the IRS trusts it to be correct. No error-prone humans involved. Except you.

I couldn't efile because H&R block couldn't handle Section 199A dividend credit calculations.

The 199A for REIT income? You must be doing something different with it because it seemed like it worked okay for me.

I think it had to do with my 1099 income. Somehow, HR Block refused to do the calculation.

See my previous thread on this.

viewtopic.php?t=428555&hilit=8995a

Anyone else had similar problem? I am willing to switch to TT if TT can handle this and so I won't have to file paper returns next year.

[Jrob6]

Not sure (not an accountant) but I wonder if some of this is that you're on the hook for the employer SS for your Schedule C/SE income. No SS would be withheld from you on the 'employee' side, but you do pay both sides for Schedule C/SE.

Worth a look. (no time to look at code rn)

[vtMaps]

The instructions for paper filing are to attach any forms like W2 and 1099 if they report any withholding on them. In fact, those instructions are printed right on the left side of page 1 of the 1040

Do you know why that is? If you eFile, you don't send them a W2 or 1099. Why do they require that for a paper filing? --vtMaps

[jebmke]

The instructions for paper filing are to attach any forms like W2 and 1099 if they report any withholding on them. In fact, those instructions are printed right on the left side of page 1 of the 1040

Do you know why that is? If you eFile, you don't send them a W2 or 1099. Why do they require that for a paper filing? --vtMaps

Probably a legacy issue and perhaps for the matching system that runs later in the year. It has always been that way -- people who haven't paper filed in a long time often forget and have to think through the steps to file a paper return.

[Hyperchicken]

Do you know why that is? If you eFile, you don't send them a W2 or 1099. Why do they require that for a paper filing? --vtMaps

Free File Fillable Forms makes me type in all the W-2 numbers, and the summary of 1099 forms.

[avalpert1]

Not sure (not an accountant) but I wonder if some of this is that you're on the hook for the employer SS for your Schedule C/SE income. No SS would be withheld from you on the 'employee' side, but you do pay both sides for Schedule C/SE.

Worth a look. (no time to look at code rn)

None of the social security portion of self employment tax is paid on your income over the limit, not the 'employee' or 'employer' side.

[rkhusky]

Not sure (not an accountant) but I wonder if some of this is that you're on the hook for the employer SS for your Schedule C/SE income. No SS would be withheld from you on the 'employee' side, but you do pay both sides for Schedule C/SE.

Worth a look. (no time to look at code rn)

None of the social security portion of self employment tax is paid on your income over the limit, not the 'employee' or 'employer' side.

If you only had SE income, you would cap out SS at an SE income of $80,100?

[Hyperchicken]

If you only had SE income, you would cap out SS at an SE income of $80,100?

Huh? No. I linked the form few posts above.

[rkhusky]

If you only had SE income, you would cap out SS at an SE income of $80,100?

Huh? No. I linked the form few posts above.

Okay I see. If you max out with W2 income, the employer half has also been maxed out.

[avalpert1]

Not sure (not an accountant) but I wonder if some of this is that you're on the hook for the employer SS for your Schedule C/SE income. No SS would be withheld from you on the 'employee' side, but you do pay both sides for Schedule C/SE.

Worth a look. (no time to look at code rn)

None of the social security portion of self employment tax is paid on your income over the limit, not the 'employee' or 'employer' side.

If you only had SE income, you would cap out SS at an SE income of $80,100?

The SS income limit is $168,600 (hasn't been $80k since 2001).

[toddthebod]

Not sure (not an accountant) but I wonder if some of this is that you're on the hook for the employer SS for your Schedule C/SE income. No SS would be withheld from you on the 'employee' side, but you do pay both sides for Schedule C/SE.

Worth a look. (no time to look at code rn)

None of the social security portion of self employment tax is paid on your income over the limit, not the 'employee' or 'employer' side.

If you only had SE income, you would cap out SS at an SE income of $80,100?

If you follow Schedule SE, both halves of the social security tax are calculated on line 10 (multiply previous line by 12.4%) which is skipped/zero if your W2 income is >$160,200.

[toddthebod]

If you are curious, you can create an account log in. View your “return transcript”. This will be a line by line data transcription of your return with both your entries and the IRS data entries. You may be able to pinpoint the line number where the discrepancy is. It could be a data transcriber error when the return was hand typed. Or it could be an error on your schedule.

I agree with this. OP can follow line by line and see where the IRS has changed/disagreed with the inputs. Not worth speculating further until they do so.