Millions of taxpayers in more than a dozen states are being asked to hold off on filing their 2022 returns as the agency works to clarify whether certain rebates and refunds constitute taxable income.
According to a statement issued by the Internal Revenue Service on Wednesday, at least 18 states offered their residents some type of special tax refund or payment in 2022, and the agency is working to figure out whether or not that money needs to be counted as taxable when filing tax forms.
“We are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers,” the agency said.
The list of states that enacted such refunds does include both Illinois and Indiana, according to the Urban-Brookings Tax Policy Center, and as such, residents of those states are being urged to wait to file their returns.
Unfortunately, the first day that taxpayers were able to file their returns was on Jan. 23, meaning that thousands may have already submitted their forms, and some may have even received their refunds from the federal and state government.
According to the Wall Street Journal, stimulus payments that were related to COVID-19 relief were not taxable, but rebates that are related to inflation relief, such as those passed in Illinois, or tax surpluses, which occurred in Indiana, could qualify for federal taxation.
Illinois was included in that group after a rebate, passed as part of the state’s fiscal year 2023 budget, was given to individuals who made less than $200,000, or couples who made less than $400,000. Those rebates returned $50 to each taxpayer.
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Property tax rebates of up to $300 were also made available as part of the program.
So what happens if you’ve already filed a tax return?
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According to the IRS, the best course of action for those individuals would be to either “wait for additional guidance” on whether or not the rebates or refunds should be classified as taxable income, or to consult with a tax professional on the subject.
If, ultimately, it is decided that the money would need to be claimed as income, then filers would potentially have to file amended tax returns, which could require them to return a portion of their 2022 tax refunds, or to make additional payments on monies owed to the federal government.
Further information will likely become available in coming days, according to the IRS.
If a taxpayer needs to file an amended return, they can generally file it using a Form 1040-X, which can be found on the IRS’ website.
