The Internal Revenue Service is cautioning taxpayers in states that offered special tax refunds or payments to wait to file their income tax returns until it's clear whether the money is taxable or not.
The warning seems to apply mainly to California taxpayers, which offered a Middle-Class Tax Refund last year to millions of residents. Other states may be affected as well, including Colorado, Delaware, Georgia, Hawaii, Idaho, Illinois, Maine, New Mexico, South Carolina and Virginia, which sent rebates to taxpayers after they reported budget surpluses. The IRS issued a
"The IRS is aware of questions involving special tax refunds or payments made by states in 2022; we are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers," said the IRS. "There are a variety of state programs that distributed these payments in 2022 and the rules surrounding them are complex. We expect to provide additional clarity for as many states and taxpayers as possible next week."
In California, at least, the refunds are not supposed to be taxed by the state, but it isn't clear whether they will be on a federal level. California issued more than 7.1 million direct deposits and 9.4 million debit cards, totaling over $9 billion, according to the
"For taxpayers uncertain about the taxability of their state payments, the IRS recommends they wait until additional guidance is available or consult with a reputable tax professional," said the IRS. "For taxpayers and tax preparers with questions, the best course of action is to wait for additional clarification on state payments rather than calling the IRS. We also do not recommend amending a previously filed 2022 return."
Tax professionals should be able to advise taxpayers on the best course of action. H&R Block has determined that the refunds and payments aren't taxable, according to
