This week, new information regarding whether stimulus checks that states issued in 2022 are regarded as taxable income on federal returns is anticipated from the Internal Revenue Service.
According to the agency’s notice, individuals who are unsure whether their state payments are taxable are advised to postpone filing their federal taxes until clarification is made available.
Could IRS Tax Stimulus Checks?
Residents of at least 19 states that granted tax rebates following a revenue surplus or relief payments to help them weather rising costs last year may be impacted by how these payments are handled.
The government that issues stimulus checks typically does not tax them. For instance, the federal government’s Economic Impact Payments or stimulus checks it paid out during the pandemic were not considered taxable income on federal returns, but California’s Middle-Class Tax Refund payments released in 2022 are not recognized as taxable income by the state.
However, the problem becomes more challenging when taxability crosses jurisdictions. When deciding how each state’s aid package will be treated federally, the IRS is likely to take its purpose and nature into account.
For instance, the IRS may be able to tax the type of relief California offered last year. The fact that high-income people were eligible for the checks is another factor that could cause California’s payments to be subject to federal taxation.
The scheme offered up to $600 to joint filers making up to $500,000 and up to $400 to single taxpayers making up to $250,000 in income.
According to Gregory Kling, a CPA and associate professor at the University of Southern California’s Leventhal School of Accounting, California’s two prior stimulus checks that were paid in 2021 were not taxable for federal purposes since they were regarded as disaster relief payments.
These States May Expect Additional Tax
But when it comes to the taxability of relief payments this year, he advised people to probably plan on the worst. According to a Forbes Advisor report, 18 other states in addition to California issued state stimulus and rebate checks last year.
These states include Alaska, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Massachusetts, Minnesota, New Jersey, New Mexico, Oregon, Rhode Island, South Carolina, and Virginia.
Inslee’s signing of the required legislation in 2021 marked the beginning of the program’s official launch procedure.
Families that meet the requirements can register for the credit on the state website or by utilizing a federal income tax online preparer that is approved, such as H&R Block.
Although the Department of Revenue cooperated with a number of tax preparers, some, like TurboTax, would not offer the choice.
Several states have passed various variations of stimulus checks in response to calls for the federal government to act to combat inflation.
Similar income tax rebate programs are offered by numerous other states, including the Middle-Class Tax Refund in California, the Colorado Cash Back program, and many others.