Rebate tax ruling ensures many happy returns

Early income-tax filers received an unanticipated — or likely overlooked — gift last week from the IRS, when it ruled that most Massachusetts taxpayers won’t need to count that one-time tax rebate as income on their 2022 federal tax returns.

It seems the commonwealth wasn’t the only state to dole out one-time payments to its residents last year. The IRS stated on Friday that most refunds issued by Georgia, South Carolina and Virginia will also be tax exempt.

Rebate payments made by 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 the taxes were deducted,” the IRS stated.

Massachusetts taxpayers reaped the benefits of an obscure law rarely enforced since voters approved it by referendum back in the 1980s.

Known as Chapter 62F, it required the state to return nearly $3 billion in excess revenue to taxpayers in proportion to how much income tax they owed on their 2021 state tax return.

In November, the Baker administration, which blindsided state lawmakers with its intention to invoke this law, began sending out rebates — amounting to 14% of an individual’s state income tax liability — by check or direct deposit.

But while the IRS debated how to deal with these rebates, many early filers — if it were even a consideration — had a choice to make: whether or not to count that cash as income.

Given that it’s still playing catch up with completing 2021 tax returns, the IRS essentially passed the buck to taxpayers, by rationalizing that these one-time payments weren’t worth the bureaucratic headaches that ruling on every instance would involve.

The state’s Department of Revenue also won’t treat that bonus payment as taxable income.

So, the only loose end remaining applies to those early-bird Massachusetts taxpayers who listed that rebate as income on their federal and state returns.

We presume they can either file an amended return, or trust that the IRS and

DOR will identify that mistake and make the necessary adjustment.