The Internal Revenue Service advises deferring tax filing if a person received a special refund or payment from their state last year.
Unfortunately for millions of taxpayers, the IRS has taken the rare step of requesting some individuals to delay completing their returns due to a variety of unresolved issues. The problem is how the federal government treats a handful of one-time tax returns and rebates that states gave out last year.
Tax Filing For 2023
Last year, 19 states offered a variety of schemes that provided taxpayers with refunds or payments for inflation relief. Due to the IRS’s ambiguity over the taxability of the payments, the agency released the guidance on Friday.
The organization advises citizens of states like California and Illinois to postpone filing their tax returns until they hear more information from the IRS.
Got a state tax refund last year
The IRS advises delaying submitting your tax return if you received a refund from your state in 2022 until the agency issues further guidance. These refunds were given by certain states, and those states have decided that the majority of people are not taxed on these payments.
According to Tom O’Saben, the National Association of Tax Professionals’ director of tax content and government relations, it must be decided whether these refunds are subject to federal income tax.
Keith Hall, president and chief executive officer of the National Association for the Self-Employed, individuals in some states would only be taxed if they itemized their deductions if they received a tax return in 2022.
Virginia is an illustration of a state that is following this path; it has declared that taxpayers who submitted a standard deduction will not be taxed for their tax refund. Not all states, nevertheless, have provided instructions on tax rebates.
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IRS Rebates, Refunds
Several states, including California, Colorado, Illinois, Virginia, and South Carolina, offered tax rebates to deserving taxpayers in 2022 to lessen the burden on residents who were struggling with rising groceries and gas prices.
Regrettably, federal authorities are scrambling to determine whether these payments are taxable but have not yet made a decision.
For instance, California distributed middle-class tax rebate payments totaling more than $9 billion to over 16 million households, ranging from $200 to $1,050. The payments are not taxable for purposes of calculating state income taxes, but federal authorities may still tax them.
As a result, the state’s taxing body, California’s Franchise Tax Board, produced millions of 1099-MISC papers outlining the payments. The IRS hasn’t made a decision yet due to the complexity of the situation.
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