The IRS on Friday issued federal tax guidance for tens of millions of Americans who received state rebates or payments in 2022.
The announcement got here about per week after the agency had urged those taxpayers to carry off on filing while it determined if the funds are taxable on federal returns.
“The IRS has determined that within the interest of sound tax administration and other aspects, taxpayers in lots of states is not going to have to report these payments on their 2022 tax returns,” the agency said in an announcement.
The agency said taxpayers in California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, Latest Jersey, Latest Mexico, Latest York, Oregon, Pennsylvania and Rhode Island won’t have to report these payments on their federal tax returns. Some Alaska taxpayers might also avoid federal levies on certain payments.
Taxpayers in Georgia, Massachusetts, South Carolina and Virginia might also skip federal tax reporting for some payments. But eligibility may hinge on aspects out of your previous tax filings. Â
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Californians should face filing challenges
“That is the suitable ruling by the IRS,” said Adam Markowitz, an enrolled agent and vice chairman at Luminary Tax Advisors in Windermere, Florida. “It’s unfair to punish taxpayers this late in the sport in the event that they were going to alter anything.”
Nonetheless, he said there could also be challenges for California taxpayers since the state already issued them 1099-MISC forms for payments of greater than $600, which reported the state’s “Middle Class Tax Refund” as a taxable payment to the IRS.
Greater than 16.5 million California taxpayers have received the payment, in keeping with the state’s Franchise Tax Board. Overall, greater than 31.6 million residents benefited including taxpayers and their dependents.
“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 can also be an authorized public accountant.
If the state doesn’t amend and reissue those forms to the IRS, it could cause a mismatch when California taxpayers file their federal returns, he said.
Typically, a mismatch between tax forms and returns triggers automated notices, which can delay refunds or require taxpayers to contact the IRS to resolve.
“I do not understand how the IRS system goes to handle that,” Herron added.
