The IRS is asking millions of taxpayers in California, Colorado and other states that issued tax rebates last year to hold off on filing their taxes.
The reason: The agency said it is seeking to clarify whether those tax rebates and special refunds are considered taxable income. “We expect to provide additional clarity for as many states and taxpayers as possible next week,” the IRS said on Friday.
About 16 million California residents received ” middle-class tax refund ” checks of $350 per eligible taxpayer last year, part of a relief package designed by the state to help residents cope with soaring inflation at a time when the state had a budget surplus.
Many other states, including Colorado, Illinois and South Carolina, authorized tax rebates last year as their coffers were buoyed by strong economic growth and federal pandemic aid.
But those one-time windfalls are now throwing a wrench into tax season for millions of Americans, many of whom count on getting timely tax refunds to pay down debt, make a purchase or get on top of bills. Last year, the average tax refund (for the 2021 tax year) was almost $3,200, a 14% jump from the prior year, according to IRS data — an amount that’s bigger than the typical worker’s paycheck.