Question: Please clarify federal taxes on the Act 115 rebate.
Answer: After saying for months that Act 115 rebates were not subject to state or federal income taxes, the state Department of Taxation acknowledged Wednesday that the Internal Revenue Service had not confirmed that guidance for the federal level before DOTAX shared it with the public, including in tax-filing tips it issued Monday, three days after the IRS posted a nationwide alert about “special tax refunds or payments” by numerous states.
Now Hawaii is among at least 19 states whose taxpayers are waiting to learn whether those payments are taxable at the federal level. The IRS said in a statement Friday that it hoped to provide clarity as early as this week, but no Hawaii updates were available Wednesday, an IRS spokesperson said. We’ll publish the answer when it’s available.
DOTAX had long said that Act 115 rebates of $100 or $300 per eligible exemption — for a family of four the rebate was $400 or $1,200 depending on household income — didn’t count as income for tax purposes and that filers wouldn’t include it on their state or federal tax returns. “The Act 115 constitutional refund is not like an ordinary state tax refund because it was not received as result of a deduction claimed for state taxes that you paid,” DOTAX said in a news release Monday, echoing information that had been posted on its website for months.
However, late Wednesday afternoon it issued a revised news release, saying that “at the time of the Act 115 refund’s implementation last year, the Hawai‘i Department of Taxation performed a review and made a determination that the Act 115 refund was not subject to state or federal tax. To date, the Internal Revenue Service has not provided any guidance on that issue, but has announced they are currently evaluating the taxability of special tax refunds or payments made by states. The IRS was requested to immediately notify the Department when it makes a determination. The Department would like to thank the public for its patience while this matter is being resolved and recommends that taxpayers follow the recent IRS’ guidance until the IRS and the Department provide updated information.”
In short, DOTAX’s previous guidance that the rebate was not subject to federal income tax was based on its own analysis and was not confirmed by the IRS before being announced to the public.
The “recent IRS’ guidance” to which the new release referred, issued Friday, recommends that affected taxpayers delay filing their tax returns until more information is available, which the IRS promised to provide as soon as possible. Taxpayers who have already filed should not file an amended return. Taxpayers and tax preparers should not call the IRS, but instead wait for public updates. Read the full statement at 808ne.ws/3HEbp3q.
Asked whether the IRS might end up confirming the state’s stance, DOTAX spokesperson Gary Yamashiroya refused to guess. “We are awaiting the guidance from the IRS and would not want to speculate as to their analysis or determination,” he said.
Monday’s tax-filing tips did not reflect the IRS alert because “we were not made aware of the IRS statement issued on Friday, so the issuance of the press release on Monday was what we believed to be accurate at the time, and also why we (issued) a revised release,” he said. Read the revised release at 808ne.ws/taxtips.
Q: Is there a way to follow up if I applied for a passport but never got it in the mail? This was over two months ago.
A: Routine processing takes eight to 11 weeks, not including mailing time, according to the U.S. State Department’s Bureau of Consular Affairs. But yes, you can check the status of your application. Most people who applied in person or renewed by mail should be able to use the online tool at passportstatus.state.gov about two weeks after applying. People who renewed online should receive an email stating the status of their application, or they can check their MyTravelGov account.
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.