The IRS on Friday issued federal tax guidance for millions of Americans who received federal rebates or payments in 2022.
The announcement came about a week after the agency asked those taxpayers to delay filing while it determined whether the funds would be taxable on federal tax returns.
“The IRS has determined that in the interests of sound tax administration and other factors, taxpayers in many states are not required to report these payments on their 2022 tax returns,” the agency said in a statement.
The agency said taxpayers in California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island are not required to report those payments on federal tax returns. Some Alaska taxpayers may also avoid federal taxes on certain payments.
Taxpayers in Georgia, Massachusetts, South Carolina, and Virginia can also skip federal tax reporting for some payments. However, eligibility may depend on factors from your previous tax returns.
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Californians may still face filing issues
“This is the correct decision by the IRS,” said Adam Markowitz, a registered agent and vice president at Luminary Tax Advisors in Windermere, Florida. “It’s unfair to penalize taxpayers so late in the game when they want to change something.”
However, he said there may be challenges for California taxpayers because the state has already issued them 1099-MISC forms for payments greater than $600 that qualify for the state’s “Middle Class Tax Refund” as a taxable payment reported to the IRS.
More than 16.5 million California taxpayers received the payment, according to the state’s Franchise Tax Board. In total, more than 31.6 million residents benefited, including taxpayers and their families.
“The State of California really did everyone a disservice by issuing 1099-MISC [forms]said Dan Herron, a San Luis Obispo, California-based certified financial planner at Elemental Wealth Advisors. He is also a certified public accountant.
If the state doesn’t amend those forms and reissue them to the IRS, it could create a discrepancy when California taxpayers file their federal returns, he said.
Typically, a discrepancy between tax forms and tax returns triggers automated alerts that can delay refunds or require taxpayers to contact the IRS for resolution.
“I don’t know how the IRS system is going to handle this,” Herron added.