The IRS has identified 21 states that made special payments to taxpayers in 2022. After a review of those special payments, the IRS has determined that taxpayers in many states will not need to report those payments on their 2022 federal income tax returns. Special payments in four of those states should be treated as refunds of state taxes paid, and taxation is determined under the general federal income tax rules for state tax refunds. Special payments in 17 states are treated as made for the promotion of the general welfare or as a disaster relief payment and are excluded from income for federal tax purposes. Illinois and New York are listed in this category but seem to have provided a mixture of payments that fell into multiple categories (see below).
If you have already filed your 2022 federal income tax return and omitted one of these special payments when it was required to be included in income, you may need to file an amended tax return and pay any additional tax due. If you included one of these special payments in income when it did not need to be included, you may need to file an amended tax return in order to get a federal income tax refund with respect to the special state tax payment.
Refund of state taxes paid
The IRS has concluded that the special payments from the following states in 2022 are treated as a refund of state taxes paid, and the appropriate analysis under the general state tax refund rules should be made.
- Georgia
- Massachusetts
- South Carolina
- Virginia
Under general rules, if the payment is a refund of state taxes paid, the payment is excluded from federal income tax unless the recipient received a tax benefit in the year the taxes were deducted on the federal income tax return. Thus, the recipient does not need to include the payment in income if the recipient claimed the standard deduction or the taxpayer itemized deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied) in the year the state taxes were deducted.
General welfare and disaster relief payments
The IRS has determined that the special payments from the following states in 2022 were made for the promotion of the general welfare or as a disaster relief payment and are excluded from income for federal tax purposes.
| State | State Payment Program |
|---|---|
| Alaska* | Energy Relief Payment (supplementing the Permanent Fund Dividend) |
| California | Middle Class Tax Refund |
| Colorado | Colorado Cash Back |
| Connecticut | Child Tax Rebate |
| Delaware | Relief Rebate Program |
| Florida | Pandemic Temporary Assistance to Needy Families |
| Hawaii | Act 115 Refund |
| Idaho | 2022 Tax Rebate |
| Illinois** | Individual Income Tax Rebate/Property Tax Rebate |
| Indiana | Automatic Taxpayer Refund #1/Automatic Taxpayer Refund #2 |
| Maine | Pandemic Relief Payments |
| New Jersey | ITIN Holders Director Assistance Program |
| New Mexico | Multiple rebate and relief programs |
| New York** | Supplemental Child Credit and Supplemental Earned Income Tax Credit |
| Oregon | One-Time Assistance Payments |
| Pennsylvania | One-Time Bonus Rebates |
| Rhode Island | 2022 Child Tax Rebates |
*Exclusion is only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend.
**The IRS stated that “Illinois and New York issued multiple payments and in each case one of the payments was a refund of taxes, which should be treated as noted above, and one of the payments is in the category of disaster relief payment.” It seems that additional guidance from the IRS is needed here to identify the tax treatment of specific payments.
Other payments
The IRS adds that other payments that may have been made by states (e.g., payments from states provided as compensation to workers) are generally includable in income for federal income tax purposes.
For more information, contact the experts at Henssler Financial:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166