Many, but not necessarily all, Massachusetts taxpayers will not need to count the one-time state tax refunds they received last year as income when they file federal tax returns, the Internal Revenue Service (IRS) said.
A week following announcing that it was reviewing the taxation of single payments made in multiple states, the IRS said late Friday that it has determined that Massachusetts, Georgia, South Carolina and Virginia will fall into the same category, excluding most states. income refunds.
“If the payment is a refund of state taxes paid and the payee claimed the standard deduction or itemized deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied), the payment is not included in federal tax revenue,” the IRS said regarding Massachusetts and those three other states.
Refund payments made by the state government to taxpayers in 2022 “will be excluded from income for federal tax purposes unless the recipient received a tax benefit in the year in which taxes were deducted,” the IRS said.
Tax revenue in Massachusetts topped expectations last year, prompting a tax cap law known as Chapter 62F that required the state government to return nearly $3 billion to taxpayers in proportion to the amount of income taxes they received. they should.
The Baker administration began sending out refunds via check and direct deposit in November.
In its announcement last week, when many Bay State residents and Americans in other states were preparing or had already filed their annual tax returns, the IRS suggested taxpayers wait for additional guidance.
Many other states, not including Massachusetts, that sent payments are also affected by Friday’s guidance from the IRS, which said that general welfare and disaster relief payments made “may be excludable from income for federal income tax purposes.” .
“The IRS has reviewed the types of payments made by various states in 2022 that may fall into these categories and, given the complicated fact-specific nature of determining the treatment of these payments for federal tax purposes, is balanced once morest the need to To provide certainty and clarity for individuals now attempting to file their federal income tax returns, the IRS has determined that in the best interest of sound tax management and given the fact that the pandemic emergency declaration ends in May 2023, making this an issue only for the 2022 tax year, if a taxpayer does not include the amount of one of these payments in their 2022 income for federal income tax purposes, the IRS will not object to the treatment of the payment 2022 as excludable from income on an original or amended return,” the IRS wrote.
