IRS considering taxing Massachusetts tax refunds – Boston News, Weather, Sports

Early filing taxpayers may want to wait this year as the IRS considers taxing state rebates paid to Massachusetts taxpayers last year.

Eighteen states, including Massachusetts, have offered some kind of rebate over the past year. Now the federal government can take back some of that money.

The conservative Massachusetts Fiscal Alliance says it’s not fair.

“This seems like the federal government is resorting to stealing from us only to try and get the last penny they can squeeze out of taxpayers,” Fiscal Alliance spokesman Paul Diego Craney told 7NEWS.

Everyone who paid taxes in Massachusetts got a portion of it back in 2022 because a rarely triggered state law causes the state to return money when it collects too much. Other states, including Connecticut, Rhode Island and Maine, also returned money.

Whether the IRS can claim a portion of that check may depend on whether individual states labeled the payments as a tax refund or some kind of disaster or economic relief.

Jared Walczak, the tax foundation’s vice president for state projects, said the IRS reviews the details of state-by-state rebate programs and determines whether they are taxable.

The review, Walczak said, comes late in the process.

“That’s the fundamental problem here,” Walczak said.

Massachusetts said payments are a rebate, while state leaders also boasted the payments would help taxpayers hit hard by inflation and other economic impacts.

The IRS has said it’s still trying to figure this all out and is recommending taxpayers remain silent.

“For taxpayers and tax preparers with questions, it’s best to wait for additional clarification on government payments rather than calling the IRS,” the agency said.

The State Department of Revenue has stated that they consider the rebates potentially subject to federal tax if used as a single deduction for state taxes on an individual’s federal tax return. Officials said taxpayers should wait for the federal government’s final word.

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