When the problem first arose, the IRS issued an official statement regarding the matter. In part, it read:
The IRS is aware of questions involving special tax refunds or payments made by states in 2022; we are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers. There are a variety of state programs that distributed these payments in 2022 and the rules surrounding them are complex. We expect to provide additional clarity for as many states and taxpayers as possible next week.
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The situation was somewhat ironic since the IRS recently issued another notice indicating that they were expecting a smooth, stress-free tax season for Americans.
Now, a new report confirms that Americans who received relief funds from their states will not face federal taxes.
In a statement, an IRS spokesperson shared, “The IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief.”
Residents 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 state payments on their 2022 tax return,” according to the IRS.
Additional rules apply for relief payments in other states.
In Alaska, for example, the IRS said 2022’s energy relief payment will not be taxed, but its annual payment to residents from the state’s Permanent Fund Dividend, which is primarily funded from oil revenue, will still be subject to federal income tax, as has been the case in prior years.
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Finally, in Georgia, Massachusetts, South Carolina, and Virginia residents will not owe federal income tax on state-issued checks provided that the funds were a refund from state taxes they paid, and for which they “claimed the standard deduction or itemized their deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied).”
If you have questions regarding how to properly report income of any kind on your taxes, talk to a local tax preparer.
Why Taxes? Why Now?
"We opened up shop here in the Wylie, Sachse, Murphy area in 2018 with a passion to help start-ups and small businesses get on top of their bookkeeping,” Allen explains.
“What we found was a lot of folks just don’t get the tax game. And now that there are new laws and regulations, many are starting to panic; but trust me, small businesses have everything to gain with the new Section 179 Deductions.
“After filing a few late returns, in that first year, we learned that there is a real need for some tax expertise. We spent a good part of 2018 getting up to speed on tax law, and now I am an Enrolled Agent, federally licensed to practice before the IRS on behalf of my clients and anyone else who may be facing the daunting ‘IRS boogie man.’
“During tax season, we are prepared to handle it all.
For individuals we have helped folks with past-due tax returns and work with the IRS to eliminate all penalties... sometimes we given get rid of the tax debt itself.
For companies the biggest problem businesses of all sizes have is filing and paying their payroll taxes - both state and federal - on time. The rules for 940s and 941s are extremely confusing so we have helped a lot of companies catch up.
If they like our work, they sometimes retain us for bookkeeping and payroll.
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