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Tax & AccountingFebruary 07, 2023

Wait to file 2022 income tax return until receiving guidance on state tax payments, the IRS advises

In a statement on Friday, the IRS tells tax pros and taxpayers not to file their 2022 federal tax returns until the agency resolves the issue of whether certain tax payments made in 2022 by many states are taxable as income for federal tax purposes. 

Tens of millions of taxpayers in over a dozen states received a number of state refunds and rebate payments in 2022 to help reduce the financial impact of higher prices for many consumer staples caused by rising inflation. The agency expects to have the issue resolved later this week. 

In its statement, the IRS said, “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.”

Many states used revenue surpluses to send their residents funds to help with rising costs

Many states found themselves with significant budget surpluses in 2022. Several sent their residents payments similar to the federal COVID  relief funds issued during the pandemic. 

The lack of clarity surrounding these payments, including whether they are considered taxable income for federal tax purposes, has led to confusion for tax pros and taxpayers alike. The uncertainty on how to proceed will result in delayed refunds for many taxpayers. 

Polling the professional tax preparation community, many believe these payments should not be subject to income tax based on the assumption that these payments were intended to provide pandemic relief. Several professionals pointed to similar treatment made to taxpayers who received disaster-relief payments. 

What to tell taxpayers who have already filed 

Many taxpayers with refunds due have already filed their returns, and those taxpayers are no doubt asking what they should do next.  

Per the IRS statement, tax professionals with clients who have already filed should NOT file an amended return at this time and wait for additional IRS guidance.  

My research indicates that there are 19 states that issued some type of special rebate or payment in 2022, affecting tens of millions of taxpayers around the country. The states are Alaska, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Massachusetts, Minnesota, New Jersey, New Mexico, Oregon, Rhode Island, South Carolina, and Virginia.

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Mark Friedlich
Vice President of US Affairs for Wolters Kluwer Tax & Accounting
Mark Friedlich, a CPA & tax lawyer, is the Vice President of US Affairs for Wolters Kluwer Tax & Accounting. He is a member of the U.S. Senate Finance Committee’s Chief Tax Counsel’s Advisory Board, advisor to 14 state taxing authorities, and has been a member of the American Bar Association’s Tax Section and AICPA’s Tax Section leadership teams. Prior to joining Wolters Kluwer he was a COO and Principal at PwC.


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