The Internal Revenue System, or IRS, asks millions of taxpayers to hold off on filing their tax returns. The agency is unsure whether the special payments from “middle-class tax refund” sent to taxpayers in 22 states, including California and Colorado, should be subjected to federal taxes.
According to Yahoo Finance, tax rebates were given to at least 22 states last year, as their funds were sustained by strong economic growth and federal pandemic aid. The 22 states include Alaska, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Maine, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Oregon, Rhode Island, South Carolina, and Virginia.
The IRS is uncertain about whether to make a “middle-class tax refund” taxable income. (Photo: Money Network)
Also Read: Distribution of Tax Refunds Might Delay Until Mid-February
In California, about 16 million taxpayers received the middle-class tax refunds checks of $350 as part of a relief package designed to help residents cope with inflation and due to the state’s budget surplus.
However, the IRS is shoving the back of taxpayers. Jared Walczak, vice president of state projects at the Tax Foundation, wrote in a blog post: “Tax experts have long known that the taxability of state rebate payments would be an issue, but the IRS remained silent until February 3, at which point it basically said we’ll get back to you soon.”
National Taxpayer Advocate, the watchdog arm of the IRS, caution the taxpayers if the IRS decides the rebate are taxable, those who have already filed their returns and included the rebates as taxable may require to file amended returns. Otherwise, taxpayers who exclude the rebate can be subjected to potential penalties, tax, and interest.
On Friday, the agency was still clarifying if those tax rebates and special refunds should be considered taxable income and advised: “[T]he best course of action is to wait for additional clarification on state payments rather than calling the IRS.”
Read More: IRS Warning: 2023 Tax Refunds Could Be Smaller – See Why
