#taxrefunds

The IRS has identified 21 states that made special payments to taxpayers in 2022. After a review of those special payments, the IRS has determined that taxpayers in many states will not need to report those payments on their 2022 federal income tax returns. Special payments in four of those states should be treated as refunds of state taxes paid, and taxation is determined under the general federal income tax rules for state tax refunds. Special payments in 17 states are treated as made for the promotion of the general welfare or as a disaster relief payment and are excluded from income for federal tax purposes. Illinois and New York are listed in this category but seem to have provided a mixture of payments that fell into multiple categories (see below).

If you have already filed your 2022 federal income tax return and omitted one of these special payments when it was required to be included in income, you may need to file an amended tax return and pay any additional tax due. If you included one of these special payments in income when it did not need to be included, you may need to file an amended tax return in order to get a federal income tax refund with respect to the special state tax payment.

Refund of State Taxes Paid

The IRS has concluded that the special payments from the following states in 2022 are treated as a refund of state taxes paid, and the appropriate analysis under the general state tax refund rules should be made.

• Georgia
• Massachusetts
• South Carolina
• Virginia

Under general rules, if the payment is a refund of state taxes paid, the payment is excluded from federal income tax unless the recipient received a tax benefit in the year the taxes were deducted on the federal income tax return. Thus, the recipient does not need to include the payment in income if the recipient claimed the standard deduction or the taxpayer itemized deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied) in the year the state taxes were deducted.

General Welfare and Disaster Relief Payments

The IRS has determined that the special payments from the following states in 2022 were made for the promotion of the general welfare or as a disaster relief payment and are excluded from income for federal tax purposes.

*Exclusion is only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend.

**The IRS stated that “Illinois and New York issued multiple payments and in each case one of the payments was a refund of taxes, which should be treated as noted above, and one of the payments is in the category of disaster relief payment.” It seems that additional guidance from the IRS is needed here to identify the tax treatment of specific payments.

Other Payments

The IRS adds that other payments that may have been made by states (e.g., payments from states provided as compensation to workers) are generally includable in income for federal income tax purposes.

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

The federal income tax filing deadline for individuals is generally Tuesday, April 18, 2023.

The IRS has postponed the deadline to file federal income tax returns and make tax payments for certain New York storm victims until May 15, 2023, and to July 31, 2023, for certain Mississippi storm victims. The deadline has been postponed for disaster-area taxpayers in most of California and parts of Alabama and Georgia until October 16, 2023 (there is no need to file for an extension). The current list of eligible localities and other details for each disaster are always available on the Tax Relief in Disaster Situations page on irs.gov.

Need more time?

If you’re not able to file your federal income tax return by the April (or May or July) due date, you can file for an extension by the April (or May or July) due date using IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Filing this extension gives you until October 16, 2023, to file your federal income tax return. You can also file for an automatic extension electronically (but only if filed by the original April due date) (details on how to do so can be found in the Form 4868 instructions). There may be penalties for failing to file or for filing late.

Note: Special rules apply if you’re living outside the country, or serving in the military outside the country, on the regular due date of your federal income tax return.

Pay what you owe

One of the biggest mistakes you can make is not filing your return because you owe money. If the bottom line on your return shows that you owe tax, file and pay the amount due in full by the due date if at all possible. If you absolutely cannot pay what you owe, file the return and pay as much as you can afford. You’ll owe interest and possibly penalties on the unpaid tax, but you will limit the penalties assessed by filing your return on time, and you may be able to work with the IRS to pay the unpaid balance (options available may include the ability to enter into an installment agreement).

It’s important to understand that filing for an automatic extension to file your return does not provide any additional time to pay your tax. When you file for an extension, you have to estimate the amount of tax you will owe; you should pay this amount by the April (or May or July) filing due date.  If you don’t, you will owe interest, and you may owe penalties as well. If the IRS believes that your estimate of taxes was not reasonable, it may void your extension.

Tax refunds

The IRS encourages taxpayers seeking tax refunds to file their tax returns as soon as possible. The IRS anticipates most tax refunds being issued within 21 days of the IRS receiving a tax return if the return is filed electronically, the tax refund is delivered through direct deposit, and there are no issues with the tax return. To avoid delays in processing, the IRS encourages people to avoid paper tax returns whenever possible.

IRA contributions

Contributions to an individual retirement account (IRA) for 2022 can be made up to the April due date (without regard to extensions) for filing the 2022 federal income tax return.  Certain New York storm victims have until May 15, 2023, to make contributions to an IRA for 2022; certain Mississippi storm victims have until July 31, 2023; and disaster-area taxpayers in most of California and parts of Alabama and Georgia have until October 16, 2023.

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

The IRS announced that the starting date for when it would accept and process 2022 tax-year returns was Monday, January 23, 2023.

Tips for making filing easier

To speed refunds and help with tax filing, the IRS suggests the following:

• Make sure you have received Form W-2 and other earnings information, such as Form 1099, from employers and payers. The dates for furnishing such information to recipients vary by form, but they are generally not required before February 1, 2023. You may need to allow additional time for mail delivery.
• Go to irs.gov to find the federal individual income tax returns, Form 1040 and Form 1040-SR (available for seniors born before January 2, 1958), and their instructions.
• File electronically and use direct deposit.
• Check irs.gov for the latest tax information.

Key filing dates

Here are several important dates to keep in mind:

• January 13. IRS Free File opened. Free File allows you to file your federal income tax return for free [if your adjusted gross income (AGI) is $73,000 or less] using tax preparation and filing software. You can use Free File Fillable Forms even if your AGI exceeds $73,000 (these forms were not available until January 23). You could file with an IRS Free File partner (tax returns could not be transmitted to the IRS before January 23). Tax software companies may have accepted tax filings in advance.
• January 23. IRS began accepting and processing individual tax returns.
• April 18. Deadline for filing 2022 tax returns (or requesting an extension) for most taxpayers.
• May 15. Deadline for filing 2022 tax returns (or requesting an extension) for California taxpayers that reside in one of the federally declared disaster area and that are eligible for tax relief from the recent storms.
• October 16. Deadline to file for those who requested an extension on their 2022 tax returns.

Awaiting processing of previous tax return?

The IRS is attempting to reduce the inventory of prior-year income tax returns that have not been fully processed due to pandemic-related delays. Taxpayers do not need to wait for their 2021 return to be fully processed to file their 2022 return.

Tax refunds

The IRS encourages taxpayers seeking a tax refund to file their tax return as soon as possible. The IRS anticipates most tax refunds being issued within 21 days of the IRS receiving a tax return if the return is filed electronically, any tax refund is delivered through direct deposit, and there are no issues with the tax return. To avoid delays in processing, the IRS encourages people to avoid paper tax returns whenever possible.

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.