Did you receive an ‘inflation check’ last year? IRS is now deciding if your state’s one-time payment is taxable.

- Advertisement -

The direct payments that many states authorized to residents last year while inflation soared are posing new questions this tax season: Will that money be taxed by the Fed?

The answers matter to the Internal Revenue Service, state tax officials and tax preparers, with nearly 20 states flagging payments last year.

- Advertisement -

Most importantly, the answer matters to Americans who are hoping to keep every penny while inflation remains uncomfortably hot, even as it comes out of last year’s simmer.

The list of 2022 exempt states by Oxier includes Arkansas, California, Colorado, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, New York, Oregon, South Carolina and Virginia. count, The three states that issued the 2021 direct payments are California, Idaho and Maryland, Auxier said.

- Advertisement -

The IRS is “aware of questions regarding particular tax refunds or payments made by states in 2022; We are working with state tax authorities as quickly as possible to provide additional information and clarity for taxpayers, said the federal tax collector a statement on Friday.

,The list of 2022 exempt states includes Arkansas, California, Colorado, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, New York, Oregon, South Carolina and Virginia.,

- Advertisement -

The IRS said it expected to provide “additional clarity for as many states and taxpayers as possible” this week.

In the interim, taxpayers who are not aware of the tax rules associated with their state payments should wait for additional guidance or check with a tax professional on what to do next.

The IRS advised waiting to hear about the guidance rather than calling the agency. The agency said that anyone who has already filed 2022 income tax return should not file a revised return. It’s a new turn for an agency that has been expecting and hoping for an easier tax season than in recent years.

“The IRS will have to decide how to treat these for federal tax purposes. I suspect there is going to be a list of answers,” said Edward Karl, vice president of tax policy and advocacy at the American Institute of CPAs. .

What’s more, state-specific criteria and legislative labels for payments may cause the IRS to assess tax in some cases but not in others, he said.

Here’s why it’s important: The federal tax assessment will either reduce your refund or deepen your tax liability. “When Every Penny Helps, or Hurts” Depending on the individual’s tax situation, Carl said. “It’s meaningful to many millions of taxpayers.”

taxpayers are waiting

The Federation of Tax Administrators, an organization representing state tax administrators, said, “It is expected that the IRS will complete its review as soon as possible so that taxpayers will have the information they need to report accurately, if necessary.” these payments on their federal individual income tax return.”

Last year, 18 states authorized one-time direct payments to residents, while others expanded pre-existing payment programs, said Richard Auxier, senior policy associate at the Tax Policy Center, which trend study,

For some residents of these roughly 20 states, state checks differ from stimulus checks in one key way: The IRS was clear from the beginning that federal stimulus checks did not count as federal taxable income.

Overall, 35 states — flush with revenue and budget surpluses — enacted legislation designed as fiscal relief in a time of high costs, Auxier said. This included tax-rate cuts and one-time payments.

For example, in 2022 California will have “middle class tax refund,That benefited more than 31.6 million Californians and their dependents, and the Golden State has already made more than $9 billion in payments through direct deposit and debit cards. Depending on income and dependents, a married couple can receive up to $1,050.

The payment “is not taxable for California state income tax purposes. You do not need to claim the payment as income on your California income tax return,” explained the state. franchise tax board, However, the agency said it was sending IRS paperwork, so-called 1099-MISC forms, to families who received at least $600.

Annette Nealen, an accounting and finance professor who directs San Jose State University’s graduate tax program, said the wording of the California law could leave it open to some interpretation by federal tax officials. It pointed to a clause that said the payment “shall not be a refund of excess payment of income-tax”.

Still, California tax agency officials did their best to explain the law before sending tax forms to many residents and the IRS, Nalen Said,

California’s “lawmakers put the IRS in a bad position — and taxpayers,” she said.

What if I have already filed my taxes?

It’s the start of tax filing season. The IRS started taking 2022 returns two weeks ago, on January 23. While early filing numbers for 2023 are not yet available, comparable figures from last year indicate returns are starting to pick up.

As of the week ending February 4, 2022, the IRS has already received 16.6 million individual income tax returns, data shows.

This year, the IRS is saying many refunds will be smaller as the pandemic-era boosts provisions such as the Earned Income Tax Credit and the child- and dependent-care credit.

Before filing a tax return, it’s always a plus to get additional IRS guidance on complex tax questions.

But it can be of little comfort to a taxpayer who has either already filed, or is hoping to file as soon as possible.

Carl said a family that is quick to file may need an income tax refund sooner to cover expenses. “They may need to withhold filing, which becomes an issue for those individuals.”

Credit: www.marketwatch.com /

- Advertisement -

Recent Articles

Related Stories