In her blog dated February 9, National Taxpayer Advocate Erin M. Collins noted that the IRS must issue guidance and provide education in a proactive and timely manner. Timely guidance is key to eliminating confusion and frustration for taxpayers and tax professionals, earning the trust of the American people, and providing quality service. One example relates to the federal tax treatment of special state tax refunds or payments to residents of 21 states.
TAS is happy to report that the IRS has issued guidance on these special state tax payments. The guidance is complex. Because the taxability of these state payments varies depending on the type of payment and your state of residence, TAS urges you to carefully review the IRS-issued guidance if you live in one of the following states:
TAS will continue to monitor for further developments. We encourage you to review the IRS’s Important Tax Alerts and News webpage for further updates.