Did you receive a state stimulus payment in 2022? The IRS has announced that taxpayers generally do not have to report these payments on their federal tax returns. This clears up some confusion from last week when taxpayers were asked to hold off filing their returns until the IRS determined whether or not these payments were subject to federal taxes. Are there any exceptions? What states does this apply to? We answer these questions and more below.

What refunds and payments do not have to be reported?

The IRS asserts that it “will not challenge the taxability of payments related to general welfare and disaster relief.” Taxpayers in California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island do not need to report these special payments on their 2022 returns.

Millions of taxpayers in these states received a one-time special state payment in 2022 to offset negative economic impacts and inflation.

Additionally, taxpayers in Georgia, Massachusetts, South Carolina and Virginia do not have to include these special state payments in income 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 benefit for state taxes paid by the taxpayer during the year (because the $10,000 SALT deduction limit applied, for example).

The IRS also clarifies that Alaska’s energy relief payment will not be taxed; however, the state’s Permanent Fund Dividend is still includable in income for federal income tax purposes.

Here is a helpful chart which specifies what payments are excluded from federal taxes:

Questions on your individual situation? We’ve got you covered—contact us today.