Question: Auwe! The IRS should have settled questions about the state rebate before they started accepting tax returns last month. They always say to file right away to avoid identity theft, and I’m ready to file and they said to wait.
Answer: Your wait is over. The Internal Revenue Service relented on Friday and said it won’t challenge the taxability of special payments related to general welfare or disaster relief made by 17 states last year, including Hawaii. This means that Hawaii residents don’t have to report Act 115 refunds on their state or federal income tax returns, which is what the state Department of Taxation had said all along.
The IRS threw that guidance into doubt Feb. 3, when it issued a nationwide alert saying that it was investigating the taxability of special tax refunds or payments made by numerous states, and that residents of those states should delay filing their tax returns until the matter was settled.
Now it is. For 17 of the 21 states, the IRS decided that it was in the best interest of “sound tax administration” to put the matter to rest, given the complexity of the various state payments, the need to provide certainty for people trying to file their taxes and the fact that the issue affected only the 2022 tax year. For those states, including Hawaii, “the IRS will not challenge the treatment of these payments as excludable for federal income tax purposes in 2022,” the agency said in a news release Friday.
In the other four states, special state payments may be excluded if the filer meets certain requirements, it said.
Hawaii’s tax department had announced months ago that the Act 115 constitutional refund of $100 or $300 per eligible exemption would not be included as income on a state or federal tax return because it was not received as a result of a deduction claimed for state taxes paid. However, it had not cleared that interpretation with the IRS before sharing it with the public.
The IRS did not address any state’s reasoning in its news release, instead stating broadly that certain payments may be excluded from income for federal tax purposes under the General Welfare Doctrine or as a Qualified Disaster Relief Payment and that it would not challenge such exclusions in 17 affected states. Read the news release at 808ne.ws/irsguide.
DOTAX welcomed the update. “The Hawai‘i Department of Taxation appreciates the IRS guidance issued (Friday) regarding the taxability of the Act 115, Session Laws of Hawai‘i 2022 (“Act 115”), payment to taxpayers. This is especially good news at a time when families are struggling to make ends meet,” spokesperson Gary H. Yamashiroya said in an email.
Now that the IRS has weighed in, its advice to delay filing has expired.
Also, there’s no need for the state to issue corrected 1099-G forms for tax year 2022, because the Act 115 payments had not been included on those forms in the first place.
Regarding identity theft, yes, the IRS does generally recommend that taxpayers file as soon as they have all the financial documents necessary to submit an accurate return. Doing so would prevent a scammer from filing a fraudulent return in your name later in the tax season, which opened Jan. 23. Read more at irs.gov.
Mahalo
Aloha is alive and well in Hawaii. A kind of crazy morning was made OK again over a kalua pig and laulau lunch at the Vineyard Zippy’s on Feb. 3. We even went so far as to indulge in hot fudge sundaes to top it all off. We waited and waited for our check. It never came! A heartfelt mahalo to the anonymous couple who had picked it up for us! Locals? Visitors? Don’t know, but earth angels for sure. Can’t wait to pay it forward. — Ever so grateful seniors
Write to Kokua Line at Honolulu Star-Advertiser, 500 Ala Moana Blvd., Suite 7-500, Honolulu, HI 96813; call 808-529-4773; or email kokualine@staradvertiser.com.
