Authorities from the Internal Revenue Service (IRS) urged particular refund recipients to delay filing their taxes and wait for state-issued guidelines on inflation payments.
The number of taxpayers affected by the recent announcement includes more than 16 million California residents. In 2022, dozens of states distributed stimulus-like payments or tax rebates to residents to counter inflation, which in that same year, reached a 40-year high.
IRS Urges To Delay Filing Taxes
On Tuesday, the agency said it needed a little bit more time to determine which of those particular payments are federally taxable and urged taxpayers to hold on to their tax returns until such rules are finalized.
In a statement, the IRS said that they recommend those uncertain about the taxability of their state payments to wait for additional guidance regarding the matter or, at the very least, consult with a reputable tax professional.
Authorities added that for taxpayers and tax preparers who still had questions, their best path forward is to wait for additional guidance from the agency regarding clarification on state payments and keep themselves from calling the IRS, as per the Washington Post.
The states that distributed stimulus-like payments after they were faced with excess revenue that stemmed from wage gains in 2021 and 2022. At the time, California's middle-class tax refund distributed payments that were worth between $200 and $1,050, and nearly 16 million people among the 23 million eligible have already received their payments.
On the other hand, New York provided inflation relief payments worth $270 for average-to-low-income residents. Authorities in the area also enacted rent and property tax relief. Oregon officials sent one-time $600 checks to help low-income households, while Georgia gave tax filers a $500 credit if they submitted their tax returns for 2021.
Taxability of Relief Payments
Tax professionals noted that the tax status of such payments would vary for every state and depends on the program's stated purpose. For example, if the payments were designed for pandemic relief, they would be considered exempt from federal tax for falling under disaster relief. But if they were meant for inflation or other economic relief, they would still be taxable.
The president and CEO of the National Association for the Self-Employed, Keith Hall, said that in some states, residents would be taxed if they received a tax refund last year if they itemized their deductions. According to the Star Adviser, an example of this is Virginia, where officials noted that taxpayers who filed a standard deduction would be exempt from being taxed for their tax rebate.
CPA and a professor at San Jose State University's Master of Science in Taxation Program, Anette Nellen, said that the design of the payments made it difficult for the agency to provide tax relief on par with what residents are demanding.
She noted that California law added a provision that said the payments are not considered tax refunds. However, there is also a statement that says the relief is not only meant for the coronavirus pandemic, said Yahoo Finance.
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