Here’s a brief overview of the current situation:
What actions should taxpayers take at this moment?
The regulations concerned “are intricate,” the IRS stated — and so is its guidance.
The IRS states that individuals should wait to file their tax returns if they are not certain that the money is taxable at the federal level.
“Furthermore, the agency advises against making any changes to an already submitted 2022 return,” indicating that individuals who have already finished their federal tax return may not have to be concerned about it, yet simultaneously.
The IRS did not respond to NPR’s emails seeking clarification on the rules of what taxpayers should do and when issuance guidance would be issued.
How do these government programs operate?
In the preceding year, certain programs provided funds to individuals in the state who submitted their tax returns punctually, whereas some imposed income restrictions. By means of extensive stimulus or inflation alleviation initiatives, individuals in numerous states received checks or direct deposits without the need for application.
Other states, such as Florida and Rhode Island, specifically targeted households with dependent children. Some states, like Illinois, linked tax rebates issued to criteria such as the payment of property tax.
Which states are impacted by the tax-season uncertainty?
Over the previous year, the IRS failed to include every state in which it is examining “inquiries related to unique tax reimbursements or payments”.
There are varying reports under which the fall programs of the IRS might review. Forbes agrees with that figure and there is a question in 19 states, says the Associated Press. Additional states such as Pennsylvania and New York are listed on the Ramsey Solutions financial advice site. However, Marketwatch puts the number around 20.
The IRS is collaborating with tax authorities in those states to determine how residents should manage the payments on their tax returns.
What was the reason behind states distributing this money?
Many special programs were fueled by a rare confluence, as states, witnessing record budget surpluses, saw increases in federal revenues from taxes and other sources during the pandemic. This coincided with sharp rises in inflation, which affected consumers.
In the states of Colorado and California, taxpayers saw checks ranging from just a few dollars to over $1,000. Many states added hundreds of dollars for families with multiple dependent children. However, in some cases, the payments were as low as $50 to $75, so they may not have a significant impact on the tax return.