The tax season is now in full swing after the IRS cleared the air on income tax on inflation relief stimulus checks. The federal tax authorities have informed that it will not collect federal taxes against state-issued inflation tax refunds and relief payments. The news was a reprieve for tens of millions of filers in around 20 states that gave out inflation relief payments in 2022.
The IRS had always called for submitting income tax returns at the earliest possible time to avoid last-minute hassles. But in an unusual move, the authorities had previously advised filers to delay filing their returns. Officials took time to determine if the inflation relief stimulus checks given by the states were taxable under federal laws.
The tax filing season for 2023 started on January 23. The announcement ensured that taxpayers in over 20 states can now go ahead and file their taxes without including the inflation relief stimulus checks as income. Residents of California, Florida, Alaska, Colorado, Delaware, Connecticut, Hawaii, Illinois, Hawaii, Idaho, Indiana, New Jersey, Maine, New Mexico, Oregon, New York, Rhode Island, and Pennsylvania have now been exempted from paying any taxes against state inflation relief payments in the form of tax refunds or stimulus checks. they also need not report such income on their federal income tax returns, the IRS clarified.
The agency said that the payments that the states made to their residents were for promoting the general welfare in some states and as disaster relief payments in other states. There they would not be taxed at the federal level.
Residents of Massachusetts, Virginia, South Carolina, and Georgia will have to report such payments as income if the recipient of such benefits did not claim standard or itemized deduction without receiving a tax benefit, the agency said.
Close to two dozen states sent out stimulus checks to residents to combat an unprecedented rise in prices in 2022. They were helped along by an economic boom in the last two quarters of 2021 that left them flush with excess revenue.
The decision on state payments by the IRS came even as the agency reported encouraging service figures. The Treasury Dept. reported that the agency answered 88.6% of its calls from the start of the filing season through February 4. This is up from the 13% of calls that were answered during the previous tax season in 2022. It was even lower at 11% in 2021.
Tax Refunds Amount Get Smaller In Tax Season 2023
The tax season is in full swing. So far in the 2023 tax season, the IRS has received processed a considerably higher number of income tax returns compared to the 2022 season. The agency began accepting federal income tax returns for 2022 in the last week of January and the season will continue through April 18 this year.
As usual, filers have been encouraged to get their returns in quickly after the initial muddle over the inflation relief stimulus checks were cleared. The latest agency data indicate that millions have filed their returns by the second week of February.
By February 3, agency figures revealed that they have received 18,946,000 income tax returns. That is 13.5% over the previous year’s figures. Of the 18.9M received, the IRS has already processed close to 17M of them. That is a whopping 29.1% rise over the processing figures for 2022.
But it gets more intriguing when we come to the tax refund statistics. The agency has already issued close to 8 M refunds this year for a total payment of $15.696B. The tax refunds issued by the IRS are a staggering 84.7% more than those sent out at the same time last year. And the total amount is also higher by 64.6% than at this time last year.
But many filers will be disappointed in the 2023 income tax filing season as the average amount that the agency refunded is 10.8% less than the average refund check at this time last year.
The average amount refunded this year is $1,963 against $2,201 for last year. Analysts and experts had already warned that the tax refund stimulus checks would be way smaller this year as the pandemic-era assistance had ended totally on the federal front.
The general pattern for direct deposit tax refunds has also been the same. The direct deposit refund numbers saw a rise of close to 35% and the total direct deposit refund amount has also shown a healthy increase. But the average direct deposit refunds of taxes have slid down. This has gone down from $2,084 per filer.
But finally, the tax refund amount boils down to the unique tax situation of each filer. The average refund check for this year’s tax season could also be in for some rise once more returns come in.
Some Moves That Could Get Your 2023 Tax Refunds Faster
While the last few tax seasons were marked by plenty of backlogs, this year could turn out to be different. As a senior analyst said, this could be the year when filers stopped talking about any backlog. The IRS has done a commendable job this year by reducing the mass volume of unprocessed income tax returns and correspondence.
The IRS cut its massive backlog of unprocessed returns by close to two-thirds in one year. That is close to around 4 million extra processing. Despite the agency bringing in over five thousand additional operators this year, it has advised filers to try the website first at the official IRS website.
A second tool available for filers is the Where’s My Refund. This can be used on the agency website. It was updated by the second week of this month with projected dates of tax refund deposits for taxpayers who have applied for the Earned Income Tax Credit.
The interactive assistant of the IRS is also very helpful in getting answers to the most specific and common questions linked to tax filings. It helps in ensuring the correct filing of all tax returns. Most of the numbers thrown up at this early stage of the tax season are normal. But as the IRS begins issuing tax refunds to filers the scenario claiming the ACTC and the EITC, will likely change in the middle of the month.
