Following a period of public confusion, the Internal Revenue Service (IRS) officially announced on Friday that the “winter energy relief payments” received by Mainers earlier this year will be exempt from federal taxation.
During a scheduled phone call between the IRS and the Maine Revenue Service (MRS) on December 7, the IRS reportedly indicated that these $450 payments would be subjected to federal tax — an apparent reversal of their previous guidance.
Several months earlier, the MRS submitted Ruling Requests to the IRS while these payments were still being deliberated by the legislature in order to better understand whether or not they would ultimately be subjected to federal taxation.
Over the summer, the IRS issued a notice explaining that “state payments made for the promotion of general welfare ‘are not includable in an individual’s Federal gross income.'”
According to a letter sent to the IRS by Kirsten Figueroa — Commissioner of the Department of Administrative and Financial Services — on December 12, the IRS “communicated in the December call that the payments were not exempt disaster relief payments, having been enacted too late in the pandemic, despite the still ongoing Federal disaster and public health emergency declarations.”
“This verbal guidance by the IRS is not supported by the written guidance published by the IRS and results in arbitrary and unnecessary confusion for the taxpayers of our state,” Figueroa wrote. “We are concerned that Maine taxpayers and practitioners may not get this update in a timely manner, and that the IRS will hold taxpayers responsible for a decision the IRS is not even willing to put in writing or publicly announce.”
“On behalf of the taxpayers of the State of Maine, I am deeply disappointed by this apparent reversal – which comes right on the eve of tax season and the cold winter months in Maine – and I remain frustrated with the lack of clarity from the IRS,” she wrote to the IRS.
Three days later — on December 15 — the IRS responded to Figueroa’s letter, explaining that the $450 payments would in fact be exempted from federal taxation as “qualified disaster relief payments.”
Because the $450 “winter energy” payments were passed as part of legislation that “specifically references the need to address the impact of the Covid-19 pandemic” — and “more than 99% of the payments were made” before the pandemic emergency declaration expired — they are eligible for an exclusion.
“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,” Figueroa and Gov. Janet Mills (D) said in a joint statement. “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.”
Signed on January 4, 2023, LD 3 — An Act to Establish the Winter Energy Relief Payment Program to Aid Residents with High Heating Costs and to Finalize the COVID Pandemic Relief Payment Program — transferred large sums of money from other areas of the state budget to fund hundreds of thousands of these $450 payments, costing the state a total of $398 million.
All Mainers who filed a state tax return in 2021 for less than $100,000 if filing as a single individual — or $200,000 if filing jointly — were eligible to receive the benefit.
According to the governor’s office, more than 876,000 Mainers were eligible to receive these payments.
The $450 checks were part of Gov. Mills’ “Emergency Winter Energy Relief Plan,” which also included several other initiatives related to providing state-funded home heating assistance. The program also aimed to provide support for homeless Mainers, as well as those at risk of homelessness.
The governor’s description of the Relief Plan also notes that it “completes the nation-leading $850 inflation relief checks” by earmarking another $4.4 million to fund the distribution of 22,000 more payments.
The first round of these $850 checks drew criticism from some on account of how — and when — they were distributed to Mainers.
Reaching mailboxes just a week before the 2022 gubernatorial election, the checks were accompanied by what has been described as a “campaign-style” letter that was printed on official state letterhead.
Previous reporting from the Maine Wire revealed that although Republican lawmakers were assured multiple times while considering the supplemental budget that these emergency relief checks would not be used to influence the upcoming election, the final bill did not contain any language preventing the checks from being sent to Mainers physically — alongside the governor’s letter — the week before Election Day.
The governor’s office did not respond to the Maine Wire’s request for comment at the time the original reporting on this issue was conducted.
The $450 heating assistance payments were also mailed out physically as opposed to being electronically deposited into Mainer’s bank accounts — as had been done for the vast majority of the $814 billion worth of federal Economic Impact Payments, or Stimulus Checks, that were distributed in 2020 and 2021.
Maine is not the only state that has been battling the IRS over the taxation of state-provided benefits.
Gov. Tim Walz (D) of Minnesota said during a press conference at the beginning of December that he was “deeply disappointed” to learn that the IRS would be taxing the one-time tax rebates received by Minnesotans earlier this year.
According to the governor, the Minnesota State Legislature had passed the legislation authorizing these payments roughly two weeks too late to be covered by the COVID-19 disaster declaration that allowed the $450 heating assistance checks in Maine to be exempted from federal taxation.