New Michigan tax system sparks confusion for 27,000 taxpayers

New Michigan tax system triggered incorrect notices sent to an estimated 27,000 taxpayers
Some residents were wrongly told they owed already-paid taxes
Others mistakenly received refund checks, then repayment notices

As Michigan rolls out a new online tax system meant to modernize filing and improve security, the state is acknowledging that it sent at least 27,000 taxpayers incorrect notices claiming they owed taxes already paid or had to repay unexpected refund checks.

As of last week, the state had sent out approximately 8,700 corrected letters to tax filers who had erroneously been flagged.

Citing ongoing “confusion,” the Michigan Department of Treasury said it was streamlining the process for the remaining 18,300 filers, sending out both a revised correction letter explaining the error and, if applicable, an updated “reminder of tax due” notice.

All told, the issue impacted only a fraction of the 5.1 million individual income tax returns processed and $3.3 billion in refunds the state has issued since the filing season opened on Jan. 26, according to the Michigan Department of Treasury.

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Starting this year, the department replaced previous individual income tax online services with what it called a more modern and secure website, Michigan Treasury eServices.

But the system has had issues, including earlier processing delays.

More recently, the state estimates about 27,000 people received letters between April 7 and April 28 incorrectly showing tax payments or credits from previous years, resulting in some taxpayers being told they owed taxes that they had already paid.

An ‘alarming’ development

The erroneous letters the state sent out last month were “alarming” for tax filers, said Todd Tigges, a Farmington Hills-based managing director for national tax firm UHY. “Nobody likes to be told they owe this large sum of money, especially when they thought they were making these payments throughout the year.”

In the last month, Tigges said he’s received dozens of calls each day from clients in a panic, thinking they were defrauded or scammed.

“This is definitely not something that’s common,” Tigges said. “There’s always … one or two mistakes, but not on this scale.”

The state began mailing new letters to affected taxpayers on May 5 and is posting information about system updates to a new “solutions tracker” website.

“As with any major software deployment, ongoing changes, user feedback and system refinements are key to delivering the best possible experience for taxpayers,” said Michigan Treasury spokesperson Ron Leix. “The system is in a state of continuous improvement, and enhancements will be made based on user input.”

The Michigan Association of CPAs has been working closely with the state Treasury “to provide appropriate feedback and guidance on how best to deal with these issues,” CEO Bob Doyle said in a statement.

Accountants across the state were “instrumental in first alerting us to these issues,” Doyle added.

What to do if this happens to you

Taxpayers who received Notice of Adjustment letters but still have an outstanding balance will receive an additional letter reflecting the current amount due, according to the department.

For immediate account information, individuals can request real-time information through Michigan Treasury eServices.

Last week, the state Treasury acknowledged that it was experiencing “high call volumes with extended wait times and full call queues, sometimes resulting in disconnected calls.” As a result, it added an online option for taxpayers to “request a callback” within three business days.

“The state has come out and acknowledged the system’s errors so right now, it’s just a matter of waiting to see if the problem will correct itself,” Tigges said. “If you made estimated payments and based upon your filing, if you were either due a refund or didn’t owe any additional money then you’ll be all set and the state is saying, ‘Time will work itself out’.”

In other cases, some taxpayers received unexpected refund checks for underpaying estimated taxes, only to get a letter from the state days later stating they owed taxes in the exact amount of the refund.

The Treasury Department is asking taxpayers to return the payment and notify them via Michigan Treasury eServices.

If a taxpayer cashes the check and repays the money, the payment will be applied to correct their account balance. Those who cash the check but do not repay it will first receive a reminder notice, followed by a formal notice of unpaid taxes if the balance remains outstanding.