Taxpayers planning on an early start to their tax season had a good reason to procrastinate till now. Residents of states that sent out inflation relief stimulus checks were asked by the IRS to hold off on filing their tax returns. And the reason was unique. Among the state residents that received the request were filers of Massachusetts who received 62F rebates that were sent out to over 3 million taxpayers.
We are two weeks into the tax season, but IRS had not given any indication of how long they would have to wait to get the additional clarity and the IRS had been silent on additional clarity on the subject. It had so far urged people in at least 19 states to hold off on filing their income tax returns.
So the wait for taxpayers in these 19 states was due to the IRS’s inability to decide how to handle special tax refunds and various payments that states issued in 2022 generally marked as inflation relief.
The confusion has reigned from California to Maine as they found themselves in this uncertain, unusual, and confusing situation. For the first time, the IRS itself was advising filers to put off paying their federal taxes until the authorities finally decide on what they term is a complex issue.
Steps For Taxfilers Who Received State Stimulus Checks Before IRS Clarifies On The Issued Of Federal Taxes
The IRS had initially hinted that the rules involved in deciding on taxation that was complex and said that its advice would also be so. The authorities told people to wait to file their tax returns if they were not sure if the money they got from states was taxable at the federal level.
At the same time, the agency suggests people who had completed their tax returns might not need to worry about it stating that it did not recommend amending any income tax returns filed previously. The tax authorities initially refrained from clarifying the rules, what taxpayers should do, and when they would issue guidance.
The Workings Of The State Programs
Residents of many of the 20-odd states received the inflation relief stimulus checks and tax rebates without having to separately apply for them. For most states, the rules were simple. Residents only had to file their income tax returns within the stipulated date and received the relief stimulus checks through inflation relief programs and broad stimulus.
Some programs have set income limits, while others sent out money to anyone in the state who has filed their income tax returns on time earlier. While states such as Illinois issued rebates tied to criteria that include property tax payment clearance, others like Rhode Island and Florida have targeted households with dependent children.
States Affected By Indeterminate State Of Tax Season
The IRS did not initially list all the states where it was determining questions that involved refunds of special tax or payments from previous years. Reports differ on which of the state programs might be brought under the preview of the IRS. While 19 states have been put under the scanner, there could be additional states that include Pennsylvania and New York, putting the total number at a tentative 20.
The IRS then reported that it was cooperating with those particular state tax officials to determine the ways filers in those particular states should be handling their returns or their payments.
The special programs initiated by the states were a result of a rare convergence. Even as consumers were reeling under the unprecedented rise in prices, a record of over 4 decades, most of the states were enjoying a record budget surplus thanks to a mini-boom in state revenues, with a surplus running into tens of billions of dollars for some states such as California. Other states relied on pandemic aid received from the federal administration under the American Rescue Plan Act signed by President Biden in March 2021.
In several cases, the payments were small and more of a token gesture in the range of $50 to $75. Such stimulus check amounts are not expected to make much of an impact on federal income tax if they were to be considered as income.
But many states have given out hundreds of dollars to individuals and families with multiple dependent children. Residents in Colorado and California received stimulus checks that were above a thousand dollars and several other states were also close behind.
State Tax Authorities On The Inflation Stimulus Checks
In most cases, state officials have assured resident filers that the inflation relief stimulus checks are not subject to state taxes. But even this advice has its intricacies and complexities. For instance, while Delaware has insisted that the state rebate is not subject to income tax by the state, it has included a rejoinder that states that there may be varied treatments for certain individual cases.
Idaho has gone for more open-ended states. It has stated that rebates would be handled in the same way as regular refunds. Thus they will not be taxable in Idaho. But they could be subject to taxes at the federal level. The administration of Governor Charlie Baker in Massachusetts has almost finished the distribution of over 3M tax rebates under the 62F revenue cap law of the state.
State administrative officials have stated that they have completed issuing the refund stimulus checks to all eligible state tax filers who filed their income tax returns for 2021 by end-October. The revenue department has stated that most of the beneficiaries will have received their refunds by January though the paper checks sent through the US Postal Service could face delays.
Residents who have procrastinated in filing their income tax returns for the state for 2021 can still do so. Around $150M of the $2.9B remains unpaid and in this group completes filing their income tax returns for 2021 for the state of Massachusetts, they can expect to get their 62F rebate stimulus check by the end of one month. Those who have not completed their 2021 Massachusetts income tax returns, can complete the formalities by September 15 this year and still claim their 62F refunds.
