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Tax season is in progress but millions of filers who received refunds or state tax payments are in limbo after the IRS told taxpayers to take a break on file returns.
The reason for the delay hinges on one question: Are these payments taxable on federal returns? Filers in more than 20 states still have no response.
“There are a variety of state programs that distributed these payments in 2022 and the rules around them are complex,” the IRS said. in a report last week.
The agency said it expected to provide further clarification for “as many states and taxpayers as possible” this week. In the meantime, the IRS said the affected taxpayer should suspend filing or “consult a reputable tax practitioner.”
The problem is that tax professionals also expect advice from the IRS.
In California, more than 16.5 million taxpayers have received the ‘middle class tax refund’, according to the state Franchise Tax Council. These payments are not taxable at the state level, but questions remain about federal taxation.
“I think what’s frustrating for us is that they knew states would issue stimulus payments in 2022,” said San Luis Obispo, Calif.-based certified financial planner Dan Herron at Elemental Wealth. Advisors. He is also a chartered accountant.
“They knew it was coming and they haven’t done anything so far,” he said. “Why bother opening deposit season if you’re not even ready?”
About 3 million Massachusetts taxpayers who received Chapter 62F reimbursement are also waiting. THE the state said the payments are federally taxable for filers who itemized deductions in 2021, but some tax practitioners are deferring filings until there are clear guidelines from the IRS.
They knew it was coming and they haven’t done anything until now. Why bother opening deposit season if you’re not even ready?
And Heron
Director at Elemental Wealth Advisors
“We always assumed it would be [federally] taxable,” said Steven Fafel, CPA at Leonard Fafel CPA, PC in Salem, Massachusetts. But he wants to make sure the statements are correct to avoid changing the statements later.
The National Taxpayers’ Advocate, Erin Collinscriticized the delay in a blog post THURSDAY. “Giving taxpayers the choice between waiting to file their returns and receiving their refunds or filing returns now that the IRS may later determine are inaccurate is not acceptable,” she wrote.
CNBC has contacted the IRS for comment.