The ‘inflation-relief’ fiasco isn’t over yet. Now we’re waiting for an IRS ruling | Opinion

Remember the “one-time” tax relief Californians got from the state in the last few months? Some got the money via direct deposits into their bank accounts while others got it through debit cards mailed to them that some might have mistakenly thrown away.

Just when we thought that debacle couldn’t get any worse, it did exactly that.

Only this time, the state isn’t to blame.

The state of California had told us that the payments — worth anywhere from $250 to $1,050, depending on household income and the number of dependents — do not have to be declared on state tax returns. But the Internal Revenue Service is still figuring out whether we should declare it on federal returns.

The IRS is advising taxpayers to hold off on filing their 2022 returns.

“For taxpayers uncertain about the taxability of their state payments, the IRS recommends they wait until additional guidance is available or consult with a reputable tax professional,” the agency wrote in a Feb. 3 statement. “For taxpayers and tax preparers with questions, the best course of action is to wait for additional clarification on state payments rather than calling the IRS. We also do not recommend amending a previously filed 2022 return.”

The IRS described the rules surrounding the payments as “complicated,” and said it would attempt to issue guidance within a week.

It is true that California is one of approximately 20 states that issued some form of inflation relief payment, each under different rules.

But these payments started months ago. Wouldn’t you think the IRS would have gotten right on this?

According to The Washington Post, the purpose of the payments determines whether or not the amount is taxable by the IRS.

If a payment is intended as disaster relief, then it isn’t taxable. But inflation relief payments likely are.

While we would not like to see Californians stuck with having to pay any more taxes than necessary, it seems fairly obvious that the state intended the payments as inflation relief. In fact, they were originally going to be distributed only to car owners, as compensation for sky-high gas prices.

That doesn’t seem complicated at all — unless you consider inflation a financial disaster, which it certainly is for many households.

So now, we wait to file our taxes until the IRS issues its decision. That undoubtedly means many Californians who are expecting refunds will see those payments delayed due to this latest snafu.

Here’s another irony: Some taxpayers who received 1099 forms listing the payment as income have yet to receive the actual payment from the state, either in the form of a debit card or a direct deposit.

In some cases, they may have inadvertently trashed the debit card because it looked suspiciously like junk mail.

Or, they may have simply been overlooked by the out-of-state banking network California chose to make the disbursements.

There is a remedy: Taxpayers who believe they are due a payment should call 800-240-0223. (Be sure to listen to all the prompts.)

But there could still be a long wait.

One taxpayer we spoke with received a 1099 form showing she has received $700 — even though she had never seen a dime of that money. She called to check on the status of her payment, and was told to call back after Jan. 31, which she did. But now she’s being directed to wait until Feb. 22 and if she still hasn’t gotten a payment, she should call again.

Meantime, she has an appointment with a tax preparer coming up soon, and is in the dark as to whether or not she’ll have to declare that phantom $700.

It’s time to put this entire mess behind us.

So, IRS, get it together.

One way or another, make up your mind.