Monday, August 25, 2014


The State of New Jersey wants its residents to submit their NJ-1040 state income tax returns electronically.  Those taxpayers, and tax preparers (like me), who do not use flawed and expensive tax preparation software can do so via NJWebFile, which allows taxpayers to submit their returns directly to the NJ Division of Taxation without going through a third-party commercial preparation or software company. 

The advantage to the taxpayer is that if your NJWebFile generated NJ-1040 results in a refund you can have the money directly deposited to your bank account instead of waiting for a paper check, which you must do with a paper return.  And, as with any electronically submitted return, the preparer of the return is entering the information directly into the State’s system.  There is no middle-man data entry person who could make an error in entering the information, as is the case with a paper filed return.

If the NJWebFile generated return results in a balance due, the system creates a payment voucher that the taxpayer prints out to accompany the check payment.  On the bottom of this computer-generated voucher is a numerical code that is scanned in Trenton to process the payment.

For the third time during a tax filing season the NJWebFile generated payment voucher code apparently identifies the year for which the payment is being made as the prior year and not the current year.  Although the voucher itself clearly says “2013 Payment Voucher” the payment is applied to 2012 and not 2013.

As a result, taxpayers who made a full and timely payment of the balance due on their NJWebFile submitted 2013 NJ-1040 are now erroneously receiving underpayment notices for the previously paid balance due on their 2013 return plus interest.  I have heard from 5 clients already.

Applying the 2013 payment to 2012 would create an overpayment on the taxpayer’s 2012 tax account.  If there was an overpayment on a federal return tax year account the Internal Revenue Service would promptly send the taxpayer a notice identifying the overpayment and asking for an explanation of the payment or if the taxpayer wants the amount refunded.  One would think that the NJ Division of Taxation would do the same thing.  It certainly has a fiduciary responsibility to do so.  But, of course, the NJDOT remains silent and just gladly accepts the overpayment.

I realize I am cynical when it comes to government and politics, having grown up in Hudson County NJ.  But my take is that NJDOT is purposefully silent, hoping that the taxpayer does not discover the overpayment, thus allowing the State of New Jersey to keep the money for its legislators to waste on pork and entitlements.  But that is just me.  I expect that the excuse that would be given is that the software system is at fault because it does not include an internal “prompt” to create an overpayment notice the same as it automatically generates an underpayment notice.

Well if the reason for the silence lies in the limitations of the software then fix the software so that it does automatically generate an overpayment notice.

The NJ Division of Taxation does fix the FU and properly apply the payment when it is told of the error.

This is not a new problem.  It has happened before during two prior tax filing seasons – in 2009 for 2008 NJ-1040s and in 2006 for 2005 NJ-1040s.

So if you have received an underpayment notice for your 2013 NJ-1040 DO NOT PAY IT.  Send it to your tax professional ASAP.  You should do this any time you receive a balance due notice from the IRS, the NJDOT, or any other state tax agency.  In my experience more than 2/3 of all balance due notices from tax agencies are wrong (and that is a conservative estimate).

If you “self-prepared” the 2013 NJ-1040 check to see if the “Balance of Tax” indicated on the notice is the same as the balance due on the 2013 NJ-1040 that you paid back in March or April.  If it is write to the NJDOT to tell them they FU-ed and include a copy of your cancelled check for the original payment.

The “management” of the NJ Division of Taxation is well aware of the existence of this systemic problem – I have made them so aware.  Let us hope that they fix the system so that –

(1)  this error does not happen again two or three years from now, and

(2)  their system automatically identifies and generates a notice to the taxpayer when an overpayment on a tax year account is made.

The State wants taxpayers, and preparers, to submit income tax returns electronically – but when they do the returns and payments therefor are not properly processed.

The NJWebFile is a great system – yet it is seriously limited.  There are too many situations where a taxpayer cannot submit a NJ-1040 via this system.  For example, you can reduce 1000 individual investment trades to one entry under the online schedule for “Net gains or income from the disposition of property” with NJWebFile, but you cannot use this method if you have Schedule C income or income from a K-1 for a partnership or sub-S corporation.  The NJDOT should restructure the system to reduce these limitations.


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