IRS tells millions: Don't file just yet

Agency unsure about how to deal with state rebate checks

If you're one of the millions of taxpayers who received a one-time tax payment from your state last year, the IRS has some advice: Hold off on filing your federal income tax return.

Even though tax season started Jan. 23, the IRS is still determining whether the payments — sent last year to taxpayers in nearly two dozen states as a way to provide relief from spiraling inflation — should be treated as taxable income on their federal returns.

Late last week, the IRS said that it was working with state tax officials, and it expected to provide more guidance “for as many states and taxpayers as possible” soon.

“There are a variety of state programs that distributed these payments in 2022 and the rules surrounding them are complex,” the IRS said in a statement. “For taxpayers uncertain about the taxability of their state payments, the IRS recommends they wait until additional guidance is available or consult with a reputable tax professional.”

It is an arduous task for the IRS to untangle what is federally taxable because each state that sent checks to residents in 2022 classified those payments in their own way, and had different eligibility requirements and varying reasons for doing so.

In California alone, nearly 17 million taxpayers received a one-time “middle-class tax refund” of up to $1,050 for relief against rising prices. The payments do not need to be claimed as income on California state income tax returns, according to a spokesperson for California's Franchise Tax Board. In South Carolina, the payments, also called “rebates,” were based on taxpayers' 2021 tax liability.

Various tax policy groups are also doing their own calculations of how many states could be affected, based on their readings of the payments and how they define the term “rebate.”

The Tax Policy Center, a nonprofit research group, counts 18 states that sent one-time income tax rebates in 2022 — Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Massachusetts, New Mexico, New York, Oregon, Rhode