What Happens If Your Taxes Are Rejected by the IRS?

Receiving a rejection notice from the IRS can be unsettling, but understanding what it means and how to address it is crucial. A rejected tax return often points to correctable errors or discrepancies rather than wrongdoing. Resolving these issues promptly can help avoid complications. Here’s what to do if your taxes are rejected by the IRS.

Common Rejection Triggers

Filing taxes can be complex, and even small mistakes can result in a rejected return. A frequent issue is incorrect or mismatched Social Security numbers. The IRS cross-references these with the Social Security Administration’s records, and any discrepancy—such as transposed digits or a name not updated after marriage—can cause processing delays.

Another common problem is errors in income reporting. Overlooking income from freelance work or investment dividends can lead to discrepancies between your return and the IRS’s records. The IRS uses data from Form 1099 and W-2 to verify reported income, so ensuring all income is accurately included is essential.

Filing status mistakes also contribute to rejections. For example, claiming “Head of Household” without meeting the IRS’s specific criteria can lead to problems. Each filing status has distinct requirements, so reviewing them carefully is critical to avoid errors.

How the IRS Notifies You

If the IRS identifies an issue with your tax return, they notify you with a formal Notice of Rejection via the U.S. Postal Service. This notice specifies the error or discrepancy, whether it’s related to identification, income reporting, or filing status. Reviewing the notice thoroughly is key, as it outlines the details needed to fix the problem.

The notice also provides instructions for amending your return. For instance, if there’s a mismatched Social Security number, you’ll be guided to verify and correct it. If the issue involves income reporting, the notice may prompt you to review your Form 1099 or W-2 submissions. Following these instructions carefully ensures a smoother correction and resubmission process.

Possible Fines and Penalties

A rejected return itself doesn’t result in penalties, but unresolved issues can lead to financial consequences. Missing the filing deadline after a rejection may incur a Failure-to-File penalty—5% of unpaid taxes per month, up to 25% of the total tax due.

If errors result in underreported income, you may face a Failure-to-Pay penalty, typically 0.5% of unpaid taxes per month, up to 25%. The IRS also charges interest on unpaid amounts, calculated daily at the federal short-term rate plus 3%. These costs can add up quickly, emphasizing the importance of addressing issues promptly.

Accuracy-related penalties may also apply. If the IRS determines that errors were due to negligence or disregard for IRS rules, a penalty of 20% of the underpaid tax could be assessed. Misreporting income or claiming ineligible deductions often triggers this penalty. Seeking help from a tax professional can reduce the risk of such errors.

How to Resolve a Rejected Return

Resolving a rejected tax return requires a methodical approach. Start by reviewing the rejection notice to identify the specific issues flagged by the IRS. Then, gather relevant documentation, such as previous tax returns and income statements, to make the necessary corrections.

Using tax preparation software or consulting a tax professional can help ensure your amendments comply with IRS guidelines. This is particularly useful for more complex issues like misclassified deductions or credits. Tax professionals can provide clarity on the applicable rules and help recalculate any affected amounts.

By addressing errors promptly and accurately, you can resolve a rejected return and avoid further complications.