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Our Blog   A Place for Info & Ideas

An ongoing series of informational entries

IRS Newswire

February 10, 2023

Entry #4 - Is My TABOR Check Taxable?

February 10th 2023

In recent days, several media outlets have reported that the IRS was considering a tax treatment of the varied Rebates and Credits that 21+ states had disbursed to their taxpaying public.  Colorado's TABOR checks were on that list for possible taxability.  I am happy to share the following from the IRS published today as   IR-2023-23 

IRS issues guidance on state tax payments to help taxpayers

WASHINGTON – The Internal Revenue Service provided details today clarifying the federal tax status involving special payments made by 21 states in 2022.

The IRS has determined that in the interest of sound tax administration and other factors, taxpayers in many states will not need to report these payments on their 2022 tax returns.

During a review, the IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief. This means that people in the following states do not need to report these state payments on their 2022 tax return: California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. Alaska is in this group as well, but please see below for more nuanced information.

In addition, many people in Georgia, Massachusetts, South Carolina and Virginia also will not include state payments in income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit.

The IRS appreciates the patience of taxpayers, tax professionals, software companies and state tax administrators as the IRS and Treasury worked to resolve this unique and complex situation.

The IRS is aware of questions involving special tax refunds or payments made by certain states related to the pandemic and its associated consequences in 2022. A variety of state programs distributed these payments in 2022 and the rules surrounding their treatment for federal income tax purposes are complex. While in general payments made by states are includable in income for federal tax purposes, there are exceptions that would apply to many of the payments made by states in 2022.

To assist taxpayers who have received these payments file their returns in a timely fashion, the IRS is providing the additional information below.

Refund of state taxes paid

If the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied) the payment is not included in income for federal tax purposes.

Payments from the following states in 2022 fall in this category and will be excluded from income for federal tax purposes unless the recipient received a tax benefit in the year the taxes were deducted.

  • Georgia
  • Massachusetts
  • South Carolina
  • Virginia

General welfare and disaster relief payments

If a payment is made for the promotion of the general welfare or as a disaster relief payment, for example related to the outgoing pandemic, it may be excludable from income for federal tax purposes under the General Welfare Doctrine or as a Qualified Disaster Relief Payment. Determining whether payments qualify for these exceptions is a complex fact intensive inquiry that depends on a number of considerations.

The IRS has reviewed the types of payments made by various states in 2022 that may fall in these categories and given the complicated fact-specific nature of determining the treatment of these payments for federal tax purposes balanced against the need to provide certainty and clarity for individuals who are now attempting to file their federal income tax returns, the IRS has determined that in the best interest of sound tax administration and given the fact that the pandemic emergency declaration is ending 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 its 2022 income for federal income tax purposes, the IRS will not challenge the treatment of the 2022 payment as excludable for income on an original or amended return.

Payments from the following states fall in this category and the IRS will not challenge the treatment of these payments as excludable for federal income tax purposes in 2022.

  • Alaska[1]
  • California
  • Colorado
  • Connecticut
  • Delaware
  • Florida
  • Hawaii
  • Idaho
  • Illinois[2]
  • Indiana
  • Maine
  • New Jersey
  • New Mexico
  • New York2
  • Oregon
  • Pennsylvania
  • Rhode Island

For a list of the specific payments to which this applies, please see this chart.

Other payments

Other payments that may have been made by states are generally includable in income for federal income tax purposes. This includes the annual payment of Alaska’s Permanent Fund Dividend and any payments from states provided as compensation to workers.

[1] Only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend.

[2] 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.

Unemployment Exclusion

Entry #3 - American Recovery Plan - Part 1

March 16, 2021

For those of us who filed for Unemployment Benefits this year - and there were many of us, so don't be shy, The American Recovery Plan (ARP) has addressed the added and unplanned for tax impact of those benefits. 

The idea is simple enough - the first $10,200 of benefits are excluded from your taxable income (in other words - tax-free!) as long as your "Household Modified AGI" is below $150,000.

But as is typical of most things tax related, the devil is in the details. So here are the tricky bits:

1)  Some people have already filed their returns for 2020 - some even paying extra tax amounts. Did we miss out?

2) How the heck are we to fit the exclusion into forms that aren't set-up for the exclusion?

3) And for my State taxes?

...and the answers are: 

  #1 Nope. You just need to file an amended return (1040X) and get a refund (and don't forget to recalculate the EITC too)

  #2 Use line 8 on Schedule 1 in a modified way just approved by IRS guidance

  #3 Each state is handling this differently. If you are in Colorado then either

        a) if you have filed already - no change is needed 

        b) if you have NOT filed - you will need to add back the exclusion amount to your DR 0104 (unfortunately "Colorado’s income tax statutes do not incorporate retroactive federal statutory changes that are enacted after the last day of a taxable year." but State leaders are pursuing other ways to reduce COVID related economic stresses.) 

If we didn't work together for your taxes this year, I am still available to help with this - but do try your preparer first as they have all your info already. If you used TurboTax or some other self-prep software - no judgement - you can file the amended return as part of this year's subscription and I am available if needed.

Stand by for more elements of the ARP to come as I see folks needing help with tax implications of this legislation.

As always, have questions, give me a shout.

Be well and be safe.


Quote take from CO Department of Revenue Press Release

Better Late...?

Entry #2 - Better Late Than Never?

February 17, 2021

Tax Season is here!

You may have heard that the IRS made the decision to delay to opening of e-Filing to Friday February 12th instead of the regular January 31st.  "why?", you may ask. Well, they wanted to focus on distributing the 2nd round of COVID stimulus and they needed to update the programming of the new tax related regulations passed by Congress in late December.  These are both VERY good reasons to delay the start.

But don't get lazy, the normal end to the regular filing season is still April 15th (a Thursday this year.)

Here are a few highlights for the 2020 filing season:

  1. Publication 17 - "Your Federal Income Tax - For Individuals"  has been updated to include all the various changes due to COVID response. Check out page 1 "What's New" in this 136 page document for the highlights
  2. Did you not receive an Economic Impact Payment in April of this January. Or maybe it was not the full amount?  You can claim any underpayment as a Recovery Rebate Credit on Line 30 of their 1040 or 1040-SR this year.  You will need an online account to check your filing history and access the "Rebate Tool" to help you calculate the credit.  You can sign up here:  Of course I will put this on our checklist too.
  3. Retirement account contributions and required distribution rules were relaxed.  Over 70, you can contribute to your IRA this year!
  4. Charitable Donations will be deductible even if you use the standard deduction!  Up to $300.00 of cash donations can be claimed. 
  5. Thank You Teachers!  Please list out your expenses related to PPE, disinfectant and other supplies used in the classroom to keep your kids (and you) safe.  And THANK YOU for all you do!
  6. Did you collect Unemployment in 2020? You are not alone! Congress is currently looking at making Unemployment Benefits exempt from taxes (like forgiven PPP loans are) to help relieve the burden for folks already struggling to make ends meet. Along with several other Deductions and income forgiveness is under review and will likely be made RETRO-ACTIVE.  So I am recommending we all get our paper-work together and be ready to go, but hold off submitting to the IRS until we hear more.  The Tax software I use will be updated while the ink dries, and then we can queue up your Return for e-Filing.
  7. The IRS is planning on meeting its promise to processes all e-Filed Returns within 21 days.  The excepts are for Returns claiming and Earned Income Tax Credit or Additional Child Tax Credit - as they are required to pass through an additional human screening process.
  8. e-Filing will be easier as more forms will be accepted with remotely obtained signatures (think Docu-sign) via the same e-File platform as your returns. This means fewer paper forms to fill-out and faster refunds.

Wow! That is quite the list.  As always, have questions, give me a shout.

Be well and be safe.


For Love or Money

Our First Blog Entry

February 14, 2021

I have never much liked the word "Blog". But I have always loved ideas and information, so I thought Valentine's Day is a great time to share a little of that love with you.  So I start this page on the Village web-site to share a little love.  Keep an eye out each week to see what Accounting, tax, bookkeeping or other random facts and ideas cross my desk.   ~Barb

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