IRS Gives ’11 Hour’ Advice on State Audits

On Friday, the IRS announced that most benefit checks issued by states last year are exempt from federal taxes, providing a target for the 11th hour when tax returns begin to come in.

A week after payees were told to delay filing returns, the IRS said it would not contest the taxation of payments related to general welfare and natural disasters, meaning that taxpayers who received these checks would not have to pay federal taxes on these payments. In total, the IRS said that 21 states made special payments in 2022.

“The IRS appreciates the patience of taxpayers, tax professionals, software companies, and government tax administrators as the IRS and Treasury work to resolve this unique and challenging situation,” the IRS said in a statement Friday night.

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States where taxpayers must not report checks are California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhodes. Island. . This also applies to additional payments for energy in Alaska, which were in addition to the annual dividends of the Permanent Fund, the IRS said.

In addition, many taxpayers in Georgia, Massachusetts, South Carolina and Virginia also avoid federal taxes on state payments if they qualify, the IRS reports.

On Friday, the IRS announced that it would not tax checks issued in many states last year. (AP Photo/J. David Ake)

In California, most residents last year received a “middle-class tax refund” of up to $1,050 depending on their income, filing status, and having children. The Democratic-controlled state legislature approved payments to help offset record high gas prices, which peaked at $6.44 a gallon in June, according to the AAA.

The key question was whether the federal government would treat these payments as income and require Californians to pay taxes on them. Many California taxpayers have delayed filing their 2022 returns while waiting for a response. On Friday, the IRS said it would not tax the refund.

Maine was another example of states where the IRS position created confusion. More than 100,000 tax returns had already been filed as of Thursday, many of which were filed before the IRS urged residents to delay filing their returns.

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Democratic Gov. Janet Mills pushed for $850 checks last year to bail out most Maine residents to help make ends meet as the budget surplus soared.

Her administration designed the federal tax code relief program to avoid being subject to federal taxes or being included in federally adjusted gross income calculations, said Sharon Huntley, a spokesman for the Department of Administrative and Financial Services.

Senate President Troy Jackson called the confusion caused by the IRS “harmful and irresponsible.”

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“Democrats and Republicans worked together to create a program that would comply with federal tax laws and serve Miner’s more than 800,000 residents,” the Allagash Democrat said in a statement Friday.