As tax returns started to fill in, the Internal Reserve Service (IRS) offered last-minute guidance on Friday by declaring that the large percentage of relief checks issued by states this past year was not liable for federal taxation.
The IRS mentioned it won’t contest the taxability of payouts related to the general welfare and disasters one week after instructing fee beneficiaries to postpone filing returns.
This means taxpayers who got those inspections won’t be liable to pay federal taxes on such payments. In total, the IRS stated that 21 states paid special payouts in 2022.
“The IRS appreciates the patience of taxpayers, tax professionals, software companies, and state tax administrators as the IRS and Treasury worked to resolve this unique and complex situation,” the IRS said Friday evening in a statement.
California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhode Island are the states where taxpayers are not obligated to disclose relief checks.
As stated by the IRS, this also stands true for Alaska’s energy assistance payments, which were issued in addition to the normal Permanent Fund Dividend.
If they meet certain criteria, the IRS added, most individuals in Georgia, Massachusetts, South Carolina, and Virginia can also evade paying federal taxes on state payments.
A “middle class tax refund” of up to $1,050 was offered to the majority of Californians the year before, based on their earnings, filing status, and if they had kids.
The payouts were certified by the state’s Democratic-controlled legislature as a way to compensate for traditionally high gas prices, which according to AAA reached a record-breaking $6.44 per gallon in June.
If the federal government would categorize those payouts as earnings and require Californians to pay the tax on it was a critical question.
While they awaited a response, numerous California taxpayers postponed filing their 2022 returns. The IRS stated on Friday that it wasn’t going to tax the money back.
Maine was yet another state where the IRS’s stance had caused ambiguity. As of Thursday, more than 100,000 tax returns had already been submitted, many of them before the IRS advised citizens to postpone filing their returns.
Gov. Janet Mills, a Democrat, pushed for the $850 pandemic relief checks for the majority of Mainers last year to help them make ends meet as a budget surplus grew.
According to Sharon Huntley, a spokesperson for the Department of Administrative and Financial Services, her administration created the relief scheme in accordance with regulatory tax law to prevent being liable to federal taxes or taken into consideration when determining federal adjusted gross earnings.
Troy Jackson, the president of the Senate, described the IRS’s confusion as “harmful and irresponsible.”
“Democrats and Republicans worked together to create a program that would comply with federal tax laws and deliver for more than 800,000 Mainers,” the Democrat from Allagash said in a statement Friday.