Uncertain Tax Season Ahead: IRS Advises Taxpayers to Wait for Guidance on State Payments
Taxpayers across the nation are facing an uncertain tax season as the IRS has yet to issue guidance on the taxability of state payments. On February 3, the IRS issued a statement saying it was aware of questions surrounding special tax refunds or payments made by states in 2022 and that it was working to provide additional information and clarity for taxpayers.[0]
Nineteen states, including California, Colorado, Florida, and South Carolina, have issued various programs that provided inflation relief payments or refunds last year.[1] California issued more than 16 million Middle Class Tax Refund payments, ranging from $200 to $1,050 and totaling over $9 billion.[2] The state's tax regulators have ruled the payments are not taxable for state income tax calculations, but the IRS has yet to issue a ruling on the matter.[0]
U.S. Rep. Kevin Kiley (R-Calif.) has sent a letter to Commissioner Doug O’Donnell requesting clarification on the federal taxability of California’s middle-class tax refund payments.[3] In his letter, Kiley stated that the sixteen million inhabitants of California who received a refund are at a loss as to how to deal with it in their 2022 tax return due to a lack of clear direction.[3]
The IRS is advising taxpayers and tax preparers to wait for additional clarification on state payments rather than calling the IRS. It is not advisable to modify a 2022 return that has already been submitted.
For taxpayers who have already filed, the IRS says it doesn’t recommend filing an amended return at this time as it could lead to processing delays. “We expect to provide additional clarity for as many states and taxpayers as possible next week,” the IRS said in the statement.[4]
The IRS announcement comes just in time for the start of the 2023 tax season.[5] Taxpayers are advised to wait for the additional guidance from the IRS and the states before filing their taxes. It is important to note that filing early could be costly for taxpayers who depend on the timely delivery of their tax refunds.[6]
0. “The IRS Is Urging Millions of Taxpayers to Delay Filing a Return” The Motley Fool, 9 Feb. 2023, https://www.fool.com/retirement/2023/02/09/the-irs-is-urging-taxpayers-to-delay-filing-return
1. “IRS urges special refund recipients to delay filing taxes: Explainer” KFSN-TV, 8 Feb. 2023, https://abc30.com/irs-taxes-delay-refund/12786895/
2. “Hold Off on Filing Your Return, IRS Tells Millions of Taxpayers” The Wall Street Journal, 7 Feb. 2023, https://www.wsj.com/articles/hold-off-on-filing-your-return-irs-tells-millions-of-taxpayers-11675737726
3. “IRS says it’s ‘looking into’ California inflation relief taxes; Kevin Kiley pushes for answer” Sacramento Bee, 3 Feb. 2023, https://www.sacbee.com/news/california/article272043567.html
4. “IRS tells millions of Americans to hold off on tax filing” Yahoo! Voices, 7 Feb. 2023, https://www.yahoo.com/now/irs-tells-millions-americans-hold-212513383.html
5. “Will You Have to Pay Taxes on Your California Middle Class Tax Refund?” NBC Bay Area, 7 Feb. 2023, https://www.nbcbayarea.com/news/national-international/will-you-have-to-pay-taxes-on-your-california-middle-class-tax-refund/3149762/
6. “Late IRS guidance on state stimulus checks threatens to upend tax season” AOL, 8 Feb. 2023, https://www.aol.com/irs-guidance-state-stimulus-checks-221253846.html
