In good news for U.S. tax filers, the IRS has ruled that special state payments made in 2022 won't be subject to federal income tax in most states and situations.
Taxpayers in more than 20 states received some form of special payment from their states last year, including 16 million in California. But because the special payments were made for various reasons, including pandemic relief, which wouldn't be taxable, and to help cope with inflation, the IRS told taxpayers on Feb. 3 to postpone filing their 2022 tax returns until it decided what counted as taxable income.
The IRS determined it won't challenge the taxability of payments related to general welfare or disaster relief, the categories the special payments fall under, according to a Feb. 10 news release. Therefore, "taxpayers in many states will not need to report these payments on their 2022 tax returns."
The states where taxpayers can ignore special payments for tax season are:
- New Jersey
- New Mexico
- New York
- Rhode Island
Tax filers in Alaska, Georgia, Massachusetts, South Carolina, and Virginia must meet certain requirements to determine whether their special payments count as taxable income. In those states, it's best to check with a tax preparer or follow IRS guidance.