Owner Kate Upcraft Consultancy Ltd
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RTI and ‘On or before’ – research but no review?

8th Oct 2015
Owner Kate Upcraft Consultancy Ltd
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On 16th September 2015 HMRC published the results of some research they had commissioned into how small and micro businesses were coping with the requirement to file RTI data on or before pay day.

The stated aim of the research was to assess readiness amongst micro employers (defined as those with nine or fewer employees) ahead of the scrapping of the easement on 6th April 2016 that allows them to file on or before the last pay day in the tax month, rather than on or before each pay day.

Before we consider the findings it’s worth making two salient points:

  • The research was conducted with only 50 employers (hardly a statistically sound sample?).
  • The definition of ‘pay day’ in the introduction to the document is wrong, which is one of the underlying issues with RTI; HMRC are too imprecise in their use of terminology.

So given the fact that the sample is the sample what about the definition?

Within the Full Payment Submission, the date that is supposed to be in the field with the title ‘payment date’ (field 43) is in fact contractual or regular payment date, not actual payment date. Sometimes they will be the same date, sometimes they won’t!

Easter of this year demonstrates this elegantly. Many businesses pay their staff on the first day of the tax month. The first day of the tax month (and tax year) was Easter Monday 6th April.

It was not possible to pay anyone on that day via the banking system so payments had to be made on Thursday 2nd April. If Thursday 2nd April was set up as the ‘payment date’ in the FPS that would be the wrong tax year, let alone the wrong tax month.

HMRC explained in the February Employer Bulletin that where the payment is due to be made on a non-banking day but is brought forward to the first banking day before, or the first banking day after that, then the date in field 43 should be the non-banking day i.e. the Saturday, Sunday or Bank Holiday. Where the payment is brought forward earlier than the first banking day, then the date that must be reported is the earlier date. This happens most typically at Christmas where a payment that is due on 25th of December is brought forward to say 20th, then 20th must be in the FPS as the easement only applies if payment is brought forward to 24th.

But back to the research:

Most of the 50 employers sampled had moved to full RTI reporting from the outset so had not used the easement. This had required them to do some or all of the following:

  • Move to using commercial payroll software and away from HMRC’s Basic PAYE Tools
  • Moved their employees’ pay frequency from weekly to monthly
  • Moved to electronic payroll in preference to a paper based manual system

Those utilising the easement are of course the key respondents. They cited the following difficulties in meeting ‘on or before’ reporting:

  • Achieving sign-off by senior staff
  • Timesheets not arriving in a timely fashion
  • Poor internet connections
  • Holidays or sickness meant there was no one available to process the payroll

The research does pick up on some points that will not be easy to resolve ahead of the removal of the easement next April:

  • For employers who have just one person doing a weekly payroll (and who cannot get their employees to move to a monthly pay frequency) there is always the issue of holidays and sickness to be addressed that can result in late reporting
  • Despite the promises of high speed broadband this is still a pipe dream (pardon the pun) for many parts of the country, particularly rural locations where there are also many small employers with fluctuating seasonal workforces such as in the farming and tourist sectors
  • Remote workers who have difficulty getting accurate timesheets in on time (again the lack of internet access is an issue here)

Even in such a tiny sample of small and micro employers, the message that comes through loud and clear is that unequivocal guidance is key. Commissioning research without a clear definition of ‘on or before’ given to the researchers shows how little the intricacies of RTI are understood by experts and these can easily trap the unwary employer and lead to penalties

Finally what of the ‘review’ I mentioned  Some readers may remember that in last year’s autumn statement David Gauke agreed with the OTS’ recommendation number 6 that HMRC conduct a through review of RTI and ‘on or before’ reporting. Nearly a year later there is no sign of the review, or even a terms of reference. Surely this report isn’t enough to satisfy the Minister that his commitment has been met? 

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Replies (29)

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By coland
15th Oct 2015 12:49

RTI on or before

HMRC seems to have forgotten that each tax month begins on the 6th and ends on the following 5th.

Lost count of the number of RTINOTs that indicated late submission down to the fact that 7 months have 31 days, four 30 and Feb 28 or 29 if a Leap Year!

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By miketombs
12th Oct 2015 11:50

Shocking!!!!!

Surely whoever decided that a sample-size of 50 was in any way useful should be fired?

As I understand it, the idea behind RTI was so that benefits could be calculated based on claimants' actual earnings - great idea in principle. Since benefits are generally paid 4-weekly as far as I am aware, there will always be a mismatch between the pay-period and the benefit period and payments aren't calculated and transferred instantaneously anyway, so there will always be a need for some recalculations of benefits paid. Pragmatically therefore, would it really hurt to make the RTI filing deadline say one week after the end of each payroll tax month, i.e. on or before 12th of the calendar month, or better still the 19th.

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By Charlie Carne
12th Oct 2015 11:53

Principle vs implementation

It is good to see that David Gauke has accepted a number of the OTS proposals around RTI. The Treasury and HMRC need to recognise the huge burden that RTI imposes on small businesses, which generally do not have a payroll department and rely on staff who deal with payroll just once a month and, consequently, have limited time (and knowledge) to deal with the administration around RTI. Most of us recognise the value inherent in the principle of (near) real-time reporting, but its implementation should not be at the extent of imposing unreasonable burdens on the small businesses that support our economy.

As David Gauke has agreed to review 'on or before’ reporting, whether it is necessary and the scope for extending easements for small employers, I would like to suggest that delaying the deadline for reporting to the 19th of the following month (i.e. the same date as the offline payment deadline) would solve many of the problems encountered by small businesses and their advisers. In particular, this would solve the problem whereby the employer informs the payroll administrator (whether internal or external) of a last-minute change to payments made (or doesn't remember to tell them until the next month, or until the bank has been reconciled and the discrepancy spotted).

Further, the ability for the employer to opt into an automatic direct debit scheme (whereby HMRC can take payments by direct debit of the tax/NIC due as filed on the FPS) would significantly reduce the problems of late payment of PAYE. By making this optional, any employer with non-simple payroll (eg CIS, SSP adjustments to PAYE due) could choose to continue making manual payments (as at present), but the hundreds of thousands of small employers who have simple payroll reporting could pay their PAYE every month on time and as easily as they pay their VAT (a scheme that has presumably cut late payments of VAT considerably). If the FPS is filed by 19th, then DD payment can be taken by 22nd (the current payment deadline for online payments), in the same way that a VAT return filed by 7th can be paid by DD on 10th.

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By pauljohnston
12th Oct 2015 12:12

Ah yes

but this is payroll and PAYE.  As mentioned many times on Aweb the PAYE system is just not up to speed and if it went wrong there would be hell to pay at HMRC, not withstanding there is now with the staff cuts.

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By Ammie
12th Oct 2015 13:06

A PERFECT EXAMPLE THAT "ONE SIZE DOES NOT FIT ALL"

Agreed charliecarne.

RTI in principle is an efficient tool when well thought out and well administered.

Substantial business with accounts departments should have no issue, but too many small businesses, certainly ones I deal with, are struggling to manage, that's with my help!

Common sense should prevail and align submission deadlines with the dates for CIS300's, which will provide a big enough window to deal with.

Furthermore, I have encountered problems in running BPT and Sage payroll which HMRC have no answer for, other than starting over again.

 

 

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By demcogroup
12th Oct 2015 13:25

RTI SUBMISSION ON OR BEFORE

When hourly paid employees are paid for their total hours up to the last day of each month, it is nigh impossible to obtain their time sheets from the supervisor, enter the figures and run the payroll, add overtime & holidays etc and submit to HMRC, especially if the employees work until 1700 hrs, and the payroll manager happens to be away, on holiday, or otherwise unable timewise to complete all this without working through to 23.59 that day!

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By Huw Williams
12th Oct 2015 14:36

Late time sheets and sick payroll staff

demcogroup wrote:

When hourly paid employees are paid for their total hours up to the last day of each month, it is nigh impossible to obtain their time sheets from the supervisor, enter the figures and run the payroll, add overtime & holidays etc and submit to HMRC, especially if the employees work until 1700 hrs, and the payroll manager happens to be away, on holiday, or otherwise unable timewise to complete all this without working through to 23.59 that day!

I don't understand why this is an issue - perhaps someone could explain.  If the employees are paid, then someone must have worked out how much to pay them - so the payroll has been processed by someone.  If this is done properly, I am guessing most employers now use payroll software to work it out, so clicking the "file RTI return" button should be easy to do on or before payment. 

So late timesheets are not an issue - someone will have decided what to do about them.  And illness of payroll staff is not an issue - as someone else has done the calculation.

Am I missing something obvious here?

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By Old Greying Accountant
12th Oct 2015 15:10

Yes ...

Huw Williams wrote:

demcogroup wrote:

When hourly paid employees are paid for their total hours up to the last day of each month, it is nigh impossible to obtain their time sheets from the supervisor, enter the figures and run the payroll, add overtime & holidays etc and submit to HMRC, especially if the employees work until 1700 hrs, and the payroll manager happens to be away, on holiday, or otherwise unable time wise to complete all this without working through to 23.59 that day!

I don't understand why this is an issue - perhaps someone could explain.  If the employees are paid, then someone must have worked out how much to pay them - so the payroll has been processed by someone.  If this is done properly, I am guessing most employers now use payroll software to work it out, so clicking the "file RTI return" button should be easy to do on or before payment. 

So late timesheets are not an issue - someone will have decided what to do about them.  And illness of payroll staff is not an issue - as someone else has done the calculation.

Am I missing something obvious here?

... if a bureau (accountant) runs the payroll, they will send the payroll to the employer to approve, when approval comes back the make the FPS submission. If, as often happens, the employer makes the payment or the contractual pay date is before the approval is given back to the bureau then they will not have made the FPS in time. The bureau could make the FPS when the payroll is run, but what if the employer has temporary cash flow issues and agrees with the employees to hold the payment a day/week whatever, this could tip the wages in to the next PAYE week or month!

Another problem is when the employer pays the staff net, tells the payroll department/bureau what has been paid and this is then grossed up for PAYE!

The lie of joined up government is a beyond a joke now. Why do you have to make weekly FPS submissions for employees, but monthly submissions for sub-contractors under CIS - it is not consistent. As Charlie says, the logical and sensible thing would be to treat PAYE as CIS and have the FPS for each month due by 19th following the end of the tax month. The situation we have at the moment is that we have a government smothering business in red tape when that government patently has no clue at all how business works.

 

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By Huw Williams
12th Oct 2015 16:18

Subbies in CIS

Old Greying Accountant wrote:

The lie of joined up government is a beyond a joke now. Why do you have to make weekly FPS submissions for employees, but monthly submissions for sub-contractors under CIS - it is not consistent. As Charlie says, the logical and sensible thing would be to treat PAYE as CIS and have the FPS for each month due by 19th following the end of the tax month. The situation we have at the moment is that we have a government smothering business in red tape when that government patently has no clue at all how business works.

If the real reason for RTI is to work out universal benefits then the answer to this question is easy;  HMRC dont need CIS information because they require full monthly accounts from the self-employed,

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By Huw Williams
12th Oct 2015 16:15

Thanks

I understand there can be an issue with payroll bureaux although I would hope staff sickness is not one of them.

But the article talks about employers and their problems and there was no mention of outsourcing payroll, so I had (perhaps mistakenly) assumed that it was all about in-house payroll management.  And a quick scan of the report suggests that HMRC are just talking about in-house (even though they do ask if you have outsourced).

As someone who used to do payrolls, we set up how we were going to deal with timesheets - typically paid a week in arrears which allowed time to process them.  I retired just as RTI came in so have not had to work out how to deal with getting approval and filing.  But my limited experience of the system is that it seems to cope with corrections - so being told something changed after filing an RTI return for a client is not necessarily a disaster.

But I do agree that the OOB requirement seems to be unecessary.  I dont know if HMRC have got better at using RTI information - but they did not seem to know that they have current RTI information to work with to arrive at tax codes.

 

 

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By Old Greying Accountant
12th Oct 2015 16:31

That doesn't explain why ...

... weekly paid employees have to have their income reported weekly, but weekly paid subbies are reported monthly, surely they would need to submit weekly self employed accounts.

Of course I can't see why any of this is relevant as the government want to stop working tax credits and have people on a living wage instead!

On the bureau question, in my experience most micro entities sub-contract payroll as it is too complex and time consuming - may be that is why they could only get a sample of 50!

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By WallyGandy
12th Oct 2015 17:32

OGA- you have a good point there

 

Careful what you wish for, OGA!! Let's not even think of getting weekly subbie information from the building trade (where all paper = anthrax)

But you have an excellent point- if only HMRC would allow monthly reporting of all employees whether weekly or monthly paid, then RTI would be less of a hassle.

If only.... If only.....

Another can of worms is the payroll run for fortnightly/4-weekly employees.  But I'm not opening that one.........

Cannot disagree with Huw- reputable software is little more than "click the button" to file (we use Moneysoft) and brings clients to heel when they discover that "I forgot to tell you....." can mean "too late, mate" Amen to that advantage!

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By ringi
12th Oct 2015 18:22

I can’t see what the issue is…

If there is no one to report the detail of the payment to HMRC, how come there is someone to make the payment to the member of staff?   (Likewise if the timesheets are too late to report the payment to HMRC, how come they are still in time to make the payment to the member of staff?)

It seems that employers just don’t consider operating PAYE is important, and therefore outsource it to accountants etc, while trying to bypass the accountants by calculating and making wage payments themselves.

Maybe all wages should be required to be paid var HMRC, with HMRC deducting the tax before passing the money on – it could be a lot simpler and lower cost system.

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By Charlie Carne
12th Oct 2015 18:54

Successful entrepreneurs rarely make good administrators

ringi wrote:

It seems that employers just don’t consider operating PAYE is important, and therefore outsource it to accountants etc, while trying to bypass the accountants by calculating and making wage payments themselves.

That is partly right. It is not (in my experience) that "employers don’t consider operating PAYE is important", but rather that they consider it so important that they sub-contract that work to the experts: their accountants. However, after I tell a busy and successful entrepreneur that his employee Bob's net pay is £2,156.52 this month, the entrepreneur decides to give Bob a last-minute £500 net bonus at 7 pm on Friday night and pays him £2,656.52. He may remember to tell me (a few days later) or he may forget, in which case I may not notice until I run the bank rec or start to prepare next month's payroll and spot a discrepancy in the payroll control account.

If the Treasury wants gifted entrepreneurs to grow this country out of recession, they cannot stifle them in red tape. The best of them are very good at building profitable businesses and very poor at administration. They can be taught to remember the big picture admin stuff, but they will make adjustments along the way and smaller things (like an extra bonus) will slip through. I am in favour of RTI in principle, but it needs to be flexible enough to match how small businesses operate (and not how HMRC thinks that they should operate). Any HMRC official who tells you that the entrepreneur should remember to file RTI before making any last minute adjustments has never run a small business (at least not a successful one).

ringi wrote:

Maybe all wages should be required to be paid var HMRC, with HMRC deducting the tax before passing the money on – it could be a lot simpler and lower cost system.

I really hope that you are joking!

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By Huw Williams
13th Oct 2015 17:05

Ha?

charliecarne wrote:

ringi wrote:

Maybe all wages should be required to be paid var HMRC, with HMRC deducting the tax before passing the money on – it could be a lot simpler and lower cost system.

I really hope that you are joking!

Me too.

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By Ammie
14th Oct 2015 14:15

I HAVE LITTLE DOUBT HMRC HAVE THOUGHT ABOUT IT!!

Huw Williams wrote:

charliecarne wrote:

ringi wrote:

Maybe all wages should be required to be paid var HMRC, with HMRC deducting the tax before passing the money on – it could be a lot simpler and lower cost system.

I really hope that you are joking!

Me too.

A nightmare scenario, enough to alienate a significant chunk of the work force. I would be not be surprised, in the slightest, if the notion has crossed their minds. Maybe they just haven't worked out (yet) how to administer it!!

Lord help us all!!

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By Chris Henrick
14th Oct 2015 19:55

Great points Charlie, Entrepreneurs don't have the time to be doing the admin and it's not that they don't appreciate the importance of such filings it's that it is not up there on the urgency of their to do list.

If these are systems that HMRC create then it is up to the advisors to put their own systems in place if this is a service they want to provide, to service it.

And yes, can really see giving HMRC the full wage bill would be interesting, trying to explain why to the employees they didn't get paid!

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By anthonystorey
13th Oct 2015 06:57

What about the one man accountancy firm

RTI is a nightmare for a one man band like myself. if I have to be available to file RTI reports whenever my clients actually pay their staff I will never be able to go on holiday, never be sick, never have computer problems, I will always have to work 7 days a week (instead of just sometimes) and expect phone calls at 11 o'clock at night from employers who have just paid their casual bar staff.

IT DOESN'T WORK FOR SMALL BUSINESSES OR SMALL ACCOUNTANCY FIRMS AND IS

A TOTALLY UNNECESSARY BURDEN.

Reporting should be once a month on the 19th.

 

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By Huw Williams
13th Oct 2015 17:02

Having a break

anthonystorey wrote:

RTI is a nightmare for a one man band like myself. if I have to be available to file RTI reports whenever my clients actually pay their staff I will never be able to go on holiday, never be sick, never have computer problems, I will always have to work 7 days a week (instead of just sometimes) and expect phone calls at 11 o'clock at night from employers who have just paid their casual bar staff.

My clients used to know when the office was shut (because I told them) and when I needed information to process payrolls etc around office closures.  OOB means you can file "before" the payment date - so if it is all processed before you go away it should not be a problem.

And yes I can imagine clients who get it wrong - but that is true about everything we do.

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By Ian McTernan CTA
13th Oct 2015 10:48

19th following- or even 10th

No idea why HMRC seem to think that OOB is a system that would work in the real world, clearly they were advised by big firms and accountancy firms who only deal with employers who have dedicated payroll bureaus or departments.

Down here in the real world, OOB makes zero sense.  Especially given that anyone who has ever dealt with benefits and tax credits and the like know that the chances of one department talking to another or possessing up to date information is as likely as a lottery win!

A good compromise would be file by 10th following the month end, then payment by the 19th (allowing time for amendment before paying the tax, etc).

Otherwise we'll just end up with huge piles of paperwork when the automatic fines kick in and the inevitable appeals pile up.  Under the current system if we go on holiday for two weeks through the end of a month then dozens of employers will be late filing - will that be a 'reasonable excuse'?

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By Huw Williams
13th Oct 2015 16:58

Getting it right by the 19th

Ian McTernan CTA wrote:

A good compromise would be file by 10th following the month end, then payment by the 19th (allowing time for amendment before paying the tax, etc).

If you make adjustments between two filings with HMRC I can see lots of problems, penalty notice confetti.....

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By SimonBlackham
15th Oct 2015 09:23

Payroll dates

The whole point to HMRC of on or before is their payment tracking system - they can find the payments to the employees if they are paid by BACs and as such they need the date of the actual BACs transfers.

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By Huw Williams
15th Oct 2015 10:57

Isnt there a privacy issue

SimonBlackham wrote:

The whole point to HMRC of on or before is their payment tracking system - they can find the payments to the employees if they are paid by BACs and as such they need the date of the actual BACs transfers.

I may have misunderstood, but this sounds like HMRC have open access to the BACS system and just need a name and date to find payroll payments.

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By SimonBlackham
26th Oct 2015 15:22

BACS

Not open access - but they can at least chase up the BACS system to see if payment is been made as stated. Presumably, if they do not get confirmation of the correct BACS payment as on the FPS, they can persue it further...

(sorry late reply - off for a few days)

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By DMGbus
19th Oct 2015 11:27

When a late FPS is acceptable - Updated today

https://www.gov.uk/running-payroll/fps-after-payday

This has some useful pointers / list of situations where a late FPS is acknowledged by HMRC as acceptable including:

Your employee doesn’t give you a P45 and is either paid less than £112 a week or has worked with you for less than a week.... .... Within 7 days of paying your employee

You can’t calculate or report your employee’s pay in advance because it’s based on their work on the day, eg harvest workers paid based on how much they pick.... ....Within 7 days of paying your employee

HMRC let you report monthly instead of the normal way because you were an existing employer on 5 April 2014 and had fewer than 10 employees on 6 April 2015.... ....Until 5 April 2016, you can choose to report monthly, on or before the last payday in the tax month. There are different rules for what to report in your FPS

Apart from the above there is the "within 3 days" rule not mentioned on this webpage.

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By donquixote34
03rd Nov 2015 16:09

Late FPS

DMGbus wrote:

https://www.gov.uk/running-payroll/fps-after-payday

Apart from the above there is the "within 3 days" rule not mentioned on this webpage.

 

Even HMRC can't keep track of all their exceptions and easements.  They should have built Universal Credits around the possible not information that is changeable or unavailable.

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By Old Greying Accountant
26th Oct 2015 16:36

but most salaries ...

... are not paid by BACs, certainly for small employers, they are bank transfers generally - not the same thing!

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By SimonBlackham
28th Oct 2015 17:28

Payments

Old Greying Accountant wrote:

... are not paid by BACs, certainly for small employers, they are bank transfers generally - not the same thing!

It only applies to direct BACS (so far!) where the BACS submission has a "SUN"- small companies which access BACS via a Bank App will not normally have a "SUN" or be traceable (but there is at least one that is!).

Fraudsters will/do not actually use the RTI system so only mistakes will be caught.

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By Vince54
27th Oct 2015 20:39

No joke
"ringi wrote:

Maybe all wages should be required to be paid var HMRC, with HMRC deducting the tax before passing the money on – it could be a lot simpler and lower cost system."

When RTI was first mooted, this was what HMRC proposed as the main way forward.  We fell hook, line and sinker for the system we have now.

As far as I'm aware this is still on the back-burner.  One of the bigger stumbling blocks is the application of AEOs.  The AEO deduction can't be made until you know the tax and NI deductions.  So batting files back and forth; would employees ever get paid?  Would you trust HMRC to get an AEO deduction correct, especially if there's more than one, and possibly a student loan deduction as well.

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