Did you get a “Math Error” notice from the IRS? Welcome to the club. The IRS reports that it has issued over 11 million “Math Error” letters for 2020 individual income tax returns.
Most of these notices are demanding additional payment of 2020 individual income taxes, or are threatening toreduce the refunds claimed. The huge uptick in “Math Error” notices for 2020 tax returns is attributable to the economic recovery/stimulus payments received (or not received) and how they were (or weren’t) reported on 2020 individual income tax returns.
This is a new problem for 2020. We can expect this to be an issue again in 2021.
Here’s what went wrong: Every taxpayer's 2020 form 1040 includes a worksheet comparing the amount of economic stimulus payment they actually received with the stimulus payment the taxpayer was entitled to. The amount of refund or tax due on each 1040 includes an adjustment for the difference. Many taxpayers didn’t report the correct amount for the stimulus payment they received when they filed their 2020 returns, and erroneously claimed an extra stimulus payment on their 2020 tax return. Since neither taxpayers, return preparers, tax software vendors, nor the IRS previously had to deal with this before, no one know what to expect, the IRS did a poor job of communicating with taxpayers, and millions of errors were made. This issue with reconciling the economic stimulus/recovery rebate payments in every tax return is partially responsible for this summer's epic IRS refund processing backlog.
Attached are the Recovery Rebate Credit Worksheet used to compute the “Recovery Rebate Credit” (line 30 2020 form 1040) and the instructions for it from the IRS for anyone that wants to do a deep-dive into the reconciliation process.
Dozens of our clients couldn’t tell us if they had received economic stimulus payments or not. They weren’t taxable so people didn’t keep track of them. Our clients didn’t understand that there would be a “Recovery Rebate Credit Worksheet” in their 1040. We explained this to every one of our 1040 clients. Many of them gave us incorrect information. These people are now getting “Math Error” notices. Some taxpayers that haven’t cashed their stimulus checks are all getting “Math Error” notices too.
The “Math Error” notices are generated and sent out automatically by the IRS computer system. Few, if any, of these notices are reviewed for accuracy by an actual living human being. Many of them are incorrect. Before you write out a check to the IRS (or let them confiscate part of your refund) you owe it to yourself to make sure the math error notice is correct.
We did the best we could for you with the information you gave us when we prepared your 1040. It’s up to you to find the correct information about the dates and amounts of the recovery rebate payments you received. Without that there is nothing we can do to help you.
Before 2020, most 1040 “Math Errors” flagged by the IRS had to do with incorrect social security numbers for either taxpayers or for their dependents. Name change issues also cause “Math Errors” (even though there is no math involved).
Mark S Gleason CPA
Mattson Gleason CPAs Ltd