• Your modified adjusted gross income for 1998 exceeded $100,000; or
• Your filing status was married filing separately, and you lived with your spouse anytime during 1998.

Problem: If you indicated in the IRA Pension Income (Form 1099-R) interview or on Form 8606 that you converted a traditional IRA to a Roth IRA and you weren't eligible to do so for the reasons listed above, your tax may be incorrect.

Solution: This problem does not require an update. Click the link below that describes your tax situation and complete the steps to correct this problem.

• I filed my return on time.
• I haven't filed my return, but I've obtained an extension.

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Modified Adjusted Gross Income
Modified adjusted gross income is generally your adjusted gross income from line 33 of Form 1040 (line 18 of Form 1040A), but computed without taking into account any of the following:

• savings bond interest exclusion from Form 8815
• foreign earned income exclusion or foreign housing exclusion or deduction from Form 2555 or Form 2555-EZ
• exclusion of employer-provided adoption expenses from Form 8839
• IRA or student loan interest deduction
• an amount included on line 15b of Form 1040 (line 10b of Form 1040A) due to conversions to Roth IRAs

If you are married filing jointly, your modified adjusted gross income is the combined modified adjusted gross income of you and your spouse.

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Form W-2 -- Amount in Box 13, Code E Over $10,000
Users Affected: We believe this problem affects very few users. You may be affected if you meet all of the following conditions:

1. You received a Form W-2 with an amount in box 13 that is over $10,000;
2. The corresponding code in box 13 is code E (elective deferrals under a section 403(b) salary reduction agreement); AND
3. You have a tax-sheltered annuity and have worked for an educational organization, hospital, home health service agency, health and welfare service agency, church, or convention or association of churches (or associated organization) for at least 15 years.

Problem: You may be entitled to exclude some or all of the elective deferrals in excess of $10,000 from your income, but TaxCut is including any amount over $10,000 in your taxable wages (Form 1040, line 7). If you are entitled to exclude more than $10,000, TaxCut is overstating your taxable income, which may result in an overpayment of tax.

Solution: This problem doesn't require an update. Please complete the following steps.

Step 1 -- Eliminate Code E Amounts From Your W-2's

1. On the Prepare tab, click the Forms button and display the Forms list.
2. Double-click Form W-2 Worksheet, Wage and Tax Statement.
3. Scroll down to box 13 and remove any code E amounts, as well as the corresponding code "E".

Step 2 -- Determine if You Have Excess Deferrals

Determine if you exceeded the dollar limit for elective deferrals for your particular circumstances. Refer to "Limit on Elective Deferrals" in Publication 571, Tax Sheltered Annuity Programs for Employees of Public Schools and Certain Tax-Exempt Organizations. Click here to download Publication 571 in PDF format.

• If you don't have excess deferrals, stop here.
• If you have excess deferrals, complete Step 3 below to enter the amount on TaxCut's Attachments Worksheet.

Step 3 -- Enter Excess Deferrals on the Attachments Worksheet

1. In the Forms list, double-click Attachments Worksheet (near the top of the list). If the form doesn't appear in the list, uncheck the "Show Only Forms with Data" option at the top of the list.
2. Scroll down to Page 5, Part I (Miscellaneous Income Items), line 2 (Other wage-type income).
3. Enter the amount of your excess deferrals on line 2a, and the amount of your spouse's excess deferrals (if any) on line 2b.

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Form 1040A -- Dependent Care Benefits for Filers Who Are Single, Head of Household, or Qualifying Widow(er)
Users Affected: This problem affects you only if you meet all of the following conditions:

1. You are filing Form 1040A;
2. One or more of your Form W-2's shows an amount in box 10 (dependent care); and
3. Your filing status is single, head of household, or qualifying widow(er).

Problem: TaxCut does not enter the amount from line 15 of Schedule 2 (Child and Dependent Care Expenses for Form 1040A Filers) on to line 16 of Schedule 2. As a result, none of your dependent care benefits will be excluded from income, and your child and dependent care credit, if any, may be too high.

Solution: The update corrects this problem.

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Earned Income Credit -- Form 1040-EZ Filers with Tax-Exempt Interest
Users Affected: This problem affects you only if you meet all of the following conditions:

1. You are filing Form 1040-EZ;
2. You are claiming the earned income credit (EIC); and
3. You have any tax-exempt interest.

Problem: The calculation to determine your earned income credit does not include tax-exempt interest. As a result, the earned income credit shown on your return may be too high.

Solution: The update corrects this problem.

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Vehicle Worksheet -- Vehicles Placed in Service in 1997
Users Affected: You placed a vehicle in service in 1997.

Problem: TaxCut uses the incorrect luxury car limit for vehicles placed in service in 1997.

Solution: The update corrects this problem.

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Form 4136 -- Type of Use on Lines 1d, 1 e, and 1f
Users Affected: This problem affects you only if you meet both of the following conditions:

1. You are filing Form 4136 (Credit for Federal Tax Paid on Fuels); and
2. You entered a "type of use" 1 or 2 on lines 1d, 1e, or 1f.

Problem: In January 1999, the IRS expanded the allowable "types of use" for lines 1d, 1e, and 1f on Form 4136 to include uses 1 and 2. Because the IRS made this change after we released TaxCut, an Audit Buster message indicates that "types of use" 1 and 2 aren't allowed on lines 1d, 1 e, and 1f.

Solution: The update corrects this problem.

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