How to handle a tax return rejected by the IRS

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How to handle a tax return rejected by the IRS

You made it through tax season—gathered up all your 1099s and W-2s, double and triple checked your calculations, filled out your forms, made all your deductions, and signed, sealed delivered your income tax return right in time for last month’s filing deadline.

Just as you put taxes completely off your mind until next year, you get an unwelcome letter in the mail from the IRS with a very blunt message:

Your tax return’s been rejected.

Ouch. Rejection of any kind can certainly be a blow to your self esteem, but when it’s from the federal government it can sting that much more. Are you being investigated or audited for tax fraud? Did you make some egregious error, omit some key piece of information, and now you owe money you can’t afford? Or is it something subtler and less obvious?

Your tax return may have been rejected for a host of reasons, usually a math error or typo -- and sometimes, it might not even be your fault. There’s no need to panic. Here’s what you need to know to get your return corrected and refiled to avoid any more IRS drama:

Why your tax return was rejected

If you receive a rejection notification, it means that the IRS discovered something it deems incorrect, or some information is missing, and it’ll be up to you to fix it so your tax return can be processed correctly. Your tax return might get rejected if you incorrectly entered your:

Your return can also get flagged for:

  • State-specific errors. You may be married but trying to file separately, yet unaware that you live in a community property state where it’s not allowed.

  • Form miscalculations, like errors in the amount of tax credits or deductions you’re claiming, the amount you owe the IRS, or the amount they owe you as a tax refund.

  • Logistical errors, like failing to sign your tax return, or forgetting to attach essential documents, like your W-2 or other forms.

Deciphering confusing e-codes

If you’re mailing a paper income tax return, you won’t know immediately if it was accepted or rejected, since the IRS will need to snail mail you a notification. E-filing can be faster and more convenient, and if there’s a mistake on your tax return, you’ll receive an error code preventing you from filing it, so there’s no back-and-forth of filing, returning and resending.

The IRS has a long, extensive list of reject codes. Some common codes include:

  • Code 0500: Missing Social Security number

  • Code 0504: Missing dependent’s Social Security number

  • Code 0507: Dependent already claimed on another tax return

  • Code 0522: Incorrect filer birthdate

  • Code 0019: Wrong direct deposit information

  • Code IND-031-03: Incorrect AGI or PIN from last year’s income tax records

  • Code FW2-502: Incorrect employer identification number

The tax software you use (such as TurboTax) may be able to identify where there’s an error before you go to e-file, but if not, and you receive an error code, you’ll be able to correct it before submitting your tax return. This list of error codes from efile.com contains instructions on how to amend and fix mistakes before re-submitting your tax return.

Sometimes it’s the IRS’ fault

When you receive a rejected tax return or an error code, the IRS will tell you what the reason is, so you won’t be left having to guess why it was declined.

That doesn’t mean the error is your fault.

The information you’ve entered on your tax return may actually be correct, but no matter how many times you re-enter your Social Security number, your income -- even the info you know by heart, like your date of birth or your name -- the IRS just won’t recognize it, and you’re stuck in rejection mode. It could simply be a clerical error, though many times, it might be that the data the IRS has on file is incorrect; for instance, the IRS could be going off incorrect information given to them by the Social Security Administration.

If you’re insistent that the information on your end is correct, it’s recommended you mail your tax return to the IRS with a written note stipulating that repeated attempts to rectify the problem have failed, along with proof that your information is correct, such as a scanned copy of a driver’s license, birth certificate, or Social Security card.

How to fix and refile a rejected tax return

There are two grace periods to keep in mind for submitting a corrected tax return form.

For an e-file refile, you’ll need to submit your tax return within five days of receiving an error message to avoid a penalty fee. Then, you’ll be notified within 48 hours if it’s been accepted or rejected.

If you’re mailing your tax return, you have 10 days from the moment you receive your rejection notice.

Neither one sounds like a lot of time, but don’t worry; whether you filed your tax return early or at the very last minute, there’s plenty of time to fix, amend and resend. E-filing a correction gets less time because the convenience of error codes lets you look up the solution and refile more swiftly.

Conventional paper tax returns get twice the grace period because error codes don’t apply. In this case, if the numbers don’t match, go back and double check the IRS’ claim against your own records. Don’t worry, you won’t have to redo your entire tax return. It could be as simple as checking your birth date, or if it’s a bit more involved, like a discrepancy in the amount you owe, carefully go back, retrace your steps and redo your math. Once you find the error, you should be able to correct just that item if electronically filing; if paper filing, you’ll need to print a new sheet with the error corrected, and mail them back.

Consulting a tax professional may be helpful if the error is too intimidating for you to tackle, but remember that you’ll need to pay for their services, so it’s recommended to find one that charges an hourly rate and get an estimate of how long it’ll take to resolve the error and refile.

And if the IRS accepts your income tax return but your eagle eye spots an error they overlooked, you have up to three years to file an amended return from the date you filed it.

Correcting a tax return rejection -- no matter whose error it is -- is a process that’s simpler than you think. Mistakes happen, so don’t take it personally or doubt your tax filing skills. Tax return rejections aren’t that common, but by following some of the above steps will help you get your tax return submitted with the right information.

Image: Allan Rotgers