The IRS won't collect federal taxes against state-issued inflation relief payments or tax refunds, a reprieve for tens of millions of taxpayers.
The IRS had previously asked taxpayers to hold off filing their returns as officials determined if the state payments were federally taxable, an unusual statement for an agency that has long called for submitting returns as quickly as possible. Tax filing season began Jan. 23.
People in Georgia, Massachusetts, South Carolina and Virginia will have to report state payments as income, unless the recipient claimed the standard deduction, or itemized deductions but did not receive a tax benefit, the IRS said. California’s middle-class tax refund distributed payments worth between $200 and $1,050; close to 16 million Californians have received the payouts already, and 23 million are eligible. New York awarded inflation relief payments worth $270 for average-to-low-income residents and enacted rent and property tax relief. Oregon sent one-time $600 checks to low-income households, and Georgia gave tax filers a $500 credit after they submitted their 2021 return.
The Inflation Reduction Act backed by President Biden and other prominent Democrats provided the IRS $80 billion in additional funding over 10 years to improve services and strengthen tax enforcement for high-income earners and corporations.The tax agency invested in new technology and hired 5,000 workers to staff phones based on funding from that law, the official said.
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