IRS urges millions of Americans to delay filing their taxes [Video]

WHAT YOU NEED TO KNOW:

• The IRS is telling millions of Americans who received special state tax refunds or payments to hold off filing their 2022 taxes.
• The agency said it is “aware of questions” about the relief efforts that were crafted by states in different ways and under different rules.
• More guidance will be announced in March, according to the IRS.

The IRS is urging millions of taxpayers who received tax rebates last year to hold off on filing their taxes.

The agency said it is seeking to clarify whether those tax rebates and special refunds are considered taxable income. “We expect to provide additional clarity for as many states and taxpayers as possible next week,” the IRS said on February 3. 

At least 22 states authorized tax rebates last year, according to the Tax Foundation. The list includes Alaska, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Oregon, Rhode Island, South Carolina, and Virginia.

“This uncertainty is unfair to taxpayers,” wrote Jared Walczak, vice president of state projects at the Tax Foundation, a tax-focused think tank, in a blog post. “Tax experts have long known that the taxability of state rebate payments would be an issue, but the IRS remained silent until February 3rd, at which point it basically said we’ll get back to you soon.”

Taxpayers in these states who have already filed returns and who report the rebates as taxable may need to file amended returns to exclude the money if the IRS decides they aren’t taxable, according to the National Taxpayer Advocate, the watchdog arm of the IRS.

Conversely, taxpayers who already filed their returns and excluded the payments could be subject to potential penalties, tax and interest if the IRS decides the rebates are taxable. 

“[T]he IRS missed the boat” by failing to provide timely guidance on this issue, wrote National Taxpayer Advocate Erin Collins in a Thursday blog post. 

She added, “Giving taxpayers a choice between waiting to file their returns and receive their refunds or filing returns now that the IRS may later determine to be inaccurate is not acceptable.”

Adding to the confusion for taxpayers is that the federal government’s tax rebates — sent in the form of three stimulus checks during the pandemic — were not considered taxable income by the IRS. 

The IRS started accepting returns for this year’s tax season on Jan. 23. 

On Friday, the IRS advised, “[T]he best course of action is to wait for additional clarification on state payments rather than calling the IRS.”

It added, “We also do not recommend amending a previously filed 2022 return.” Amended returns have been caught up in the IRS’ backlog, leading to processing delays.

Source: USA Today