IRS May Tax Massachusetts Refunds Sent In 2022 Under 62F Law

Submitted by Lilslugga2002 t3_10xg6i1 in massachusetts

>BOSTON, MA — Massachusetts residents who got a refund last year under the 62F law should hold off on filing their 2022 tax returns while the Internal Revenue Service sorts out whether it’s taxable, the agency has said.
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>Massachusetts was one of 19 states that offered various tax refunds or relief last year. The 62F refunds began going out to residents in November and were equivalent to about 13 percent of the previous tax year's liability.
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>“We are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers,” the IRS said in a recent statement.
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>The Massachusetts refunds were issued under a little-known 1980s law — 62F — that says tax revenue growth in the state can't exceed the sum of wages and salaries of all state residents in a given fiscal year. The state collected $41.8 billion in tax revenue in fiscal year 2022, which is $2.94 billion more than allowed under against the wages and salaries last year.

https://patch.com/massachusetts/boston/irs-may-tax-massachusetts-refunds-sent-2022-under-62f-law

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wkomorow t1_j7s6ct7 wrote

According to the state, taxable on the federal level if you itemized deductions and included the tax you paid to the state as an itemized deduction, not if you took the standard deduction.

"The refunds are not taxable as income at the state level.

All tax refunds, including the 62F refunds, are taxable by the federal government to the extent that the recipient claimed itemized deductions on his or her federal return for Tax Year 2021, including his or her state income tax. Refund recipients who itemized on their federal returns for Tax Year 2021 will receive a Form 1099-G from the Department of Revenue by January 31 of the year following the year in which the refund was received."

https://www.mass.gov/info-details/chapter-62f-taxpayer-refunds

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Dobagoh t1_j7s8k54 wrote

Yea, what’s so complicated about this?

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frankybling t1_j7se9z5 wrote

not even a little confusing and for once the explanation makes sense

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NativeMasshole t1_j7soov1 wrote

I just don't understand why it would count as income again. The state tax doesn't get deducted on federal taxes, so you already paid federal taxes on it when you earned the money in 2021. Is it just because it could impact how your itemized deductions were calculated? Is that why it's not applicable for the standardized deduction?

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wallet535 t1_j7spm8n wrote

If you itemize, yes, you can deduct state taxes withheld (and paid) from federal taxable income. That’s why state refunds are added back to your federal taxable income the following year. It’s not relevant if you take the federal standard deduction.

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wallet535 t1_j7sqysn wrote

I think what’s complicated is they’re wondering if this Chapter 62F payment was truly a state tax refund within the meaning of the relevant parts of the Internal Revenue Code, and if it wasn’t, then was it a government payment more like, say unemployment benefits?

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Zaius1968 t1_j7vwri2 wrote

Still taxable then whether you it’s used or not. If a refund only if you itemized.

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Hanover02339 t1_j7snzyv wrote

What about the 10k deduction cap on state and local taxes though? If you were only able to deduct 10k out of say, 20k of MA taxes, and this refund returned to you 3k of the 20k of MA taxes, how would it make sense to pay taxes on the refund of a deduction that you didn’t take?

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wkomorow t1_j7sq3ws wrote

https://www.irs.gov/newsroom/with-new-salt-limit-irs-explains-tax-treatment-of-state-and-local-tax-refunds

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Hanover02339 t1_j7sreo0 wrote

Thank you for sharing this - it addresses exactly the scenario I was raising, and also confirms that it wouldn’t make sense to tax this refund under the circumstances described.

Reddit!!

Those folks who’s refund would bring them under the SALT limit, would be the ones who could be affected by this potential ruling.

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KitchenBreadfruit816 t1_j7swi90 wrote

Who the hell takes capped SALT when standard is way bigger

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wallet535 t1_j7syp03 wrote

People with big mortgage interest payments.

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wallet535 t1_j7t25ea wrote

Generally speaking, you can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness, which alone can be way more than the standard deduction. The capped SALT deduction only adds to this potentially gigantic itemized deduction. Does that make sense? SALT alone won’t make itemized deductions worth it; it’s SALT plus other deductions, mostly the mortgage-interest deduction.

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KitchenBreadfruit816 t1_j7t1t3t wrote

It’s capped at 10k

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twowrist t1_j7t62aq wrote

SALT is capped at 10K. Mortgage interest has a different set of limits entirely. Plus there’s still charitable deductions and conceivably medical deductions.

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wallet535 t1_j7sqiuu wrote

It wouldn’t make sense. That’s why the state wrote that the Chapter 62F refund would be federally taxable only to the extent it was previously deducted from your federal income. In your example, it wouldn’t have previously been deducted; thus, it wouldn’t be taxable.

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Hanover02339 t1_j7sroxh wrote

U/wkomorow provided a link that addresses the situation precisely. That’s good Reddit.

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wallet535 t1_j7spvb7 wrote

Did anyone get a 1099-G from Massachusetts for their regular refund? What about for the 62F refund?

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superbbuffalo t1_j7s654w wrote

If only they had had more time to communicate to the federal government about tax liabilities BEFORE rolling out the refunds, maybe this could’ve been avoided. Oh well. Such is Beacon Hill

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jeremiah-flintwinch t1_j7tkut6 wrote

The real story here is that corporations literally make too much taxable income in Mass, and workers make too little.

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IamTalking t1_j7u5opz wrote

You should start a business!!

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jeremiah-flintwinch t1_j7u6xoj wrote

I’m a management professional and I work with entrepreneurs every day— and it ain’t a walk in the park starting a small business in Massachusetts. The cost of doing business in this state is simply insurmountable for most would-be entrepreneurs who live here.

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IamTalking t1_j7u78br wrote

Sounds like the system is working quite well then if despite those challenges and risks, so many businesses exist

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jeremiah-flintwinch t1_j7ucup4 wrote

I see your point, and I agree that this is essentially market forces squeezing out less fit businesses, which is sort of a good thing. But on the ground, what that translates to is that becoming a small business owner feels like it’s no longer a pathway to the middle class for a lot of folks in this state. A generation or two ago, anyone with the organizational skills and gumption to start a business had a fair shot. The odds are just much worse now.

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United-Hyena-164 t1_j7uyoxc wrote

sorry, but I ain't holding off for any reason. IF that federal debt is defaulted on, I'm getting paid before it happens.

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mrlolloran t1_j7sehq4 wrote

They are absolutely not working in this as hard they can. If they were it would be solved, it’s a decision. Not to mention that I’m pretty sure they could unilaterally decide not to with no repercussions.

This whole situation is being caused by the IRS and with the stroke of a fucking pen it could end.

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TheJessicator t1_j7smp0u wrote

>This whole situation is being caused by the IRS and with the stroke of a fucking pen it could end.

I think you need to take those civics classes again. That's absolutely not how laws work.

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mrlolloran t1_j7sn8aa wrote

So who goes after the IRS if they don’t do this? Why is it a question, the IRS doesn’t even seem sure of the answer since they’re not issuing guidelines, they’re telling us to wait. Also you know how government departments work right? Some of them are entirely made up of non-elected, appointed officials who can pass things that have the effect of law (not saying this 100% good or bad all the time or that all departments have equal power to do this).

The issue is more complicated than you are making it sound.

Edit: a word

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TheJessicator t1_j7tkr32 wrote

It's a matter of getting legal advice and being damned sure they get out right. While it seems obvious that it should be taxable, they have clearly identified at least one potential legal reason why it could be that it might not be taxable, so they want to be sure. Fixing that later will be extremely costly if they get this wrong.

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twowrist t1_j7t5hs9 wrote

There are 19 states with similar issues. How many tax attorneys do you think the IRS has available to draft such rulings? How much time do you think it takes for a single tax attorney to become familiar with a single state’s special provision, study it in the context of relevant federal law, draft a ruling, get it reviewed by some number of other tax attorneys, corrected, reviewed again, and then published? All while handling whatever other caseload they have?

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mrlolloran t1_j7t63bz wrote

They literally could have warned us about this when they announced the checks were going out. They waited until some people had actually filed to tell us to wait, without so much as offering to extend the deadline, a necessary things since now more people will be filing closer to the deadline.

They’ve gone about this all wrong from the very beginning so I’m not inclined to feel sympathetic for them as an organization.

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twowrist t1_j7t6sl0 wrote

Which they? The IRS didn’t send out the checks, so they didn’t announce it. Massachusetts did, and I think it’s been on their web site for some time now, but the only weight that has is to show that people who relied on it were acting in good faith.

The IRS doesn’t have a team of tax lawyers sitting around with nothing to do except read press releases from states. They might have a team that reads changes to state tax laws, but this wasn’t a change to Massachusetts tax law.

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mrlolloran t1_j7t7462 wrote

Are you now suggesting the IRS was unaware that 19 states issued refund checks and that they just recently found out? Nobody with two brain cells to rub together followed the news and thought “that’s a potential problem”

Again, they are just announcing this now, after enough time has passed for people to have actually filed. This is a farce

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twowrist t1_j7uu5om wrote

No, I’m suggesting that you don’t understand how decisions on what to work on are made in large business environments. This is true both for government agencies and large corporations. It’s why agility in business is something business schools study, and why many businesses die because they don’t react fast enough.

Look, the IRS has no obligation to pro-actively decide every conceivable case of state law interaction with federal law. It’s not enough that they be aware of all these special cases. Some one or group of people had to make a decision that these were more important to work on than all the other things they had already committed to work on before the states started doing this. Now I don’t know what their other priorities were at the time. So I can’t argue that they should have known this was or was not important enough to preempt other work. And neither can you. Large organizations, especially those that mostly work around a fixed calendar of work, can’t be expected to make every turn on a dime decision quickly and correctly.

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OkAd134 t1_j7v8ols wrote

> they are just announcing this now, after enough time has passed for people to have actually filed

Time for the quick-snap, no-huddle offense tax return filing

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bassistmuzikman t1_j7syy08 wrote

I always get money back from Fed, but have to pay Massachusetts taxes, sooo.... yay? Kinda?

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