Are Stimulus Payments Taxable
Did you receive relief or stimulus payments last year from your state? Are stimulus payments taxable? Do you need to report these payments on my federal tax return? Well, there might be some good news.
On February 10, 2023, the Internal Revenue Service (IRS) issued guidance to taxpayers in 21 predetermined states regarding special payments received from their states’ governments in 2022. The IRS determined taxpayers from these states may exclude any special payments from their income for federal tax purposes and will not have to report these special payments on their 2022 tax returns. Some of these special payments include payments related to general welfare and disaster relief, including but not limited to COVID-19 relief. With the pandemic emergency declaration ending in May 2023, the IRS has determined it will not challenge the exclusion of special state payments should a taxpayer not include the amount of these payments in their 2022 income for federal income tax purposes.
The next big question is whether this decision applies to you. The IRS identified the following states as being exempt from including these special payments in taxable income on their 2022 tax returns: Alaska, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. Additionally, people reporting their taxes in Georgia, Massachusetts, South Carolina and Virginia will not include state payments in income for federal tax purposes 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.
Why did the IRS do this may you ask? In the interest of efficiency and given the complexity of the taxing rules surrounding 2022 state relief programs, the IRS issued this guidance to better support taxpayers and tax preparers as they prepare to file their 2022 tax returns this upcoming April.
If you have any questions or concerns the exclusion of these one-time state payments on your taxes, it is recommended you reach out to the IRS directly or a trusted tax expert to determine your eligibility. If you are unsure whether you are eligible and are concerned about upcoming filing deadlines, it is recommended to hold off filing taxes and request a filing extension with the IRS.
The tax attorneys at RJS LAW are available to assist you as well. Please reach out to us for a free consultation at either RJS LAW’s website or by phone at 619-595-1655.
Written by Sarah Becker