The Internal Revenue Service reversed itself Friday and said $450 energy relief payments to Mainers this year will be exempt from federal taxes.
The IRS said in an email it “understands the concerns of Maine residents and assures taxpayers that their state payments to lower the cost of winter energy bills are not taxable under federal law.”
The agency said it has communicated its new position to state officials “to eliminate any confusion along with an explanation about the underlying legal provisions on this complex issue.”
William M. Paul, acting chief counsel for the IRS, wrote Friday to Commissioner Kirsten Figueroa of the Department of Administrative and Financial Services that the energy assistance is considered a disaster relief payment and is exempt from federal taxes under IRS code. More than 99% of the payments were made by last March 31, which was before the COVID-19 pandemic emergency declaration expired in May, Paul said.
State officials earlier this week accused the IRS of reneging on a pledge that the payments, which are exempt from state taxes, also would be tax-free on the federal level.
Gov. Janet Mills and Figueroa said late Friday that the IRS responded to pressure from the Mills administration.
“We are thankful to the IRS for arriving at the right decision and for their prompt response as Maine taxpayers prepare for the upcoming tax season,” Mills and Figueroa said. “These payments were intended to provide financial relief to Maine people dealing with high energy prices and we’re glad that money will stay in their pockets where it belongs.”
Maine’s congressional delegation has been drafting a letter to the IRS urging that it exempt the payments from federal taxes, said Sen. Angus King, I-Maine.
King said in an interview Wednesday that the delegation has prepared a letter “pointing out the errors of their ways.” The tax payments were made when the COVID-19 pandemic “was still going” and a federal tax exemption was warranted.
An accountant has said a typical federal tax savings would be about $50.
Figueroa told the IRS that the agency had previously reversed itself by saying the payments were not exempt disaster relief payments because they were enacted too late in the pandemic, despite the continuing federal disaster and public health emergency declarations. She asked that the IRS reconsider its position.
The checks were a key part of a $473 million emergency winter energy relief plan that Mills and Republican and Democratic legislative leaders negotiated after the November 2022 election. The package, which was paid for with surplus tax revenue, was passed by the Legislature in January to help state residents cope with the high cost of energy brought on to a large extent by soaring natural gas prices on global markets.
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