IRS asks millions of Americans to wait before filing taxes

IRS Audits
Posted at 10:41 AM, Feb 07, 2023
and last updated 2023-02-10 11:28:32-05

The Internal Revenue Service is asking millions of Americans to wait to file their tax returns.

The agency says it's working to clear up questions about special tax refunds or payments made by states in 2022.

"There are a variety of state programs that distributed these payments in 2022 and the rules surrounding them are complex," the IRS stated.

California reports that it issued more than $9 billion in Middle Class Tax Refund payments. The state says the money benefitted more than 31 million California taxpayers.

While the state won't tax the refunds, residents were told that the refunds "may" be considered federal income.

Similar refunds were also given out in a slew of other states local governments attempted to help residents offset the rise of inflation and the lingering effects of the pandemic.

The IRS says it plans to offer guidance to as many states as possible as soon as this week.

"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," the IRS said.

In Colorado, the entire entire legislative delegation, on Friday led by Congressmen Joe Neguse and Ken Buck signed a letter calling on the Internal Revenue Service to treat TABOR payments as nontaxable income.

This comes after theIRS called on people in states that receive special tax refunds, including Colorado, to wait to file until the government agency provides what it called additional guidance or ‘clarification on state payments’.

In the letter, the congressional delegation urged the IRS to ‘honor long-standing regulatory practice and treat the revenue payments as nontaxable income.’

TABOR, or Taxpayer Bill of Rights is an amendment approved by voters in 1992 that returns surplus revenue back to Colorado taxpayers.

“It is incomprehensible that the IRS would threaten to take money out of the hands of hardworking Coloradans,” said Neguse in the letter.

“For thirty years, these TABOR revenue payments have rightfully made their way to families throughout our communities without the IRS raising any issues. We must ensure the IRS does not impede the revenue structure that Colorado voters have adopted, which would not only create confusion in the middle of tax season but impose significant cost burdens on Colorado taxpayers.” Neguse continued in the release.

Buck's office also shared the letter to IRS acting commissioner Douglas O'Donnell which referred to how the agency has previously handled TABOR payments.

'Historically, the IRS has never considered such payments as taxable income since the amendment was ratified in 1992—over thirty years ago. Expecting Coloradans to now pay part of these revenue payments back would impose a significant burden on Colorado taxpayers, introduce considerable compliance costs for taxpayers who did not anticipate having to add their TABOR revenue payments to their joint or single filings, and cost Coloradans hundreds of additional dollars in tax liability.'the letter stated.

Jeff Anastasio, Denver7 digital journalist, contributed to this report.