The Washington Post: "Don't file your taxes yet, IRS says amid confusion over state benefits"

This has been covered in the news many many times, and it’s discouraging we’re one quarter into February, and IRS STILL can’t say if the middle income tax relief is taxable. Incredible.

I suspect it will be taxable, based on the above article, but we have to wait to find out.

Are we supposed to remember what we received and decide whether it is reportable or will the IRS send out 1099s.

And how were we supposed to avoid under withholding if we do not know. Under withholding is tough enough when a lot of your income is based on Mutual Fund Distributions.

I think it depends on what each state called the payments. If it was designated as a state tax rebate it’s probably FIT taxable. If they called it some kind of a stimulus or relief payment, it’s probably not taxed by the Feds.

In Cal, it’s titled “Middle Class Tax Refund”

It’s not a simple problem for the Feds. It’s difficult to come up a ruling that will be fair to all taxpayers when each state does things a little differently with the $800B they got from the Federal Government.

About 20 states handed out rebate/relief money to their residents in 2002. Congress gave the states a lot of leeway in spending the money. If a state decides to give it’s residents a state tax break it’s their choice to do so. But most state tax paid is FIT deductible, so any rebates would normally be considered as income. If the state disbursed the money as a relief payment then it’s probably not considered income for FIT.

So how does the Fed make it fair to all?

Not taxed in CAL

From your linked article
" The IRS said Friday that these other states’ payments also fall into the same category as California:

  • Alaska
  • Colorado
  • Connecticut
  • Delaware
  • Florida
  • Hawaii
  • Idaho
  • Illinois
  • Indiana
  • Maine
  • New Jersey
  • New Mexico
  • New York
  • Oregon
  • Pennsylvania
  • Rhode Island"

:slightly_smiling_face: :upside_down_face: :crazy_face: