The IRS has finally clarified whether relief checks issued by some states last year are going to be taxed, doing so right as Americans have begun to file their 2022 taxes.
In a statement last week, the IRS cautioned taxpayers to delay filing their returns as the agency considered whether taxpayers needed to report special payments issued by 21 states in 2022. Now, the IRS has concluded that most will not need to pay taxes on those payments for general welfare and disaster relief after all.
"The IRS appreciates the patience of taxpayers, tax professionals, software companies and state tax administrators as the IRS and Treasury worked to resolve this unique and complex situation," the agency said Friday.
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The states where the relief checks do not have to be reported by taxpayers are California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. That also applies to energy relief payments in Alaska that were in addition to the annual Permanent Fund Dividend, the IRS said.
In addition, many taxpayers in Georgia, Massachusetts, South Carolina and Virginia also avoid federal taxes on state payments "if the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit."
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Millions of Americans in these 21 states received some form of tax rebate or stimulus payment last year as state governments sought to provide relief from inflation. However, until Friday it was unclear if those payments would count as taxable income that needed to be reported to the IRS.
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Last week, the IRS told taxpayers to hold off filing their taxes until "additional guidance" was issued clarifying the rules surrounding these state payments. The agency did not recommend amending a previously filed 2022 return.
The Associated Press contributed to this report.
