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IRS delivers ruling on whether state stimulus checks are taxable

The IRS had told taxpayers in states that awarded stimulus or tax refund checks to hold off filing tax returns.
The IRS website.
Posted at 12:20 PM, Feb 13, 2023
and last updated 2023-02-13 12:20:01-05

Taxpayers in 21 states can move forward with filing their tax returns after the Internal Revenue Service ruled that state stimulus checks are not taxable.

As tax season got underway, the IRS urged those in states where stimulus checks were offered to wait. 

Residents in these states will not be required to include such payments on their tax returns.

Seventeen of the states provided general welfare and disaster relief payments. Those states include Alaska, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island.

In four other states, Georgia, Massachusetts, South Carolina and Virginia, taxpayers do not need to list state payments 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 tax benefit.

“The IRS is aware of questions involving special tax refunds or payments made by certain states related to the pandemic and its associated consequences in 2022,” the IRS said. “A variety of state programs distributed these payments in 2022 and the rules surrounding their treatment for federal income tax purposes are complex. While in general, payments made by states are includable in income for federal tax purposes, there are exceptions that would apply to many of the payments made by states in 2022.”

30% of Americans relying on tax refunds to make ends meet this year

30% of Americans relying on tax refunds to make ends meet this year

Many Gen Z and millennial taxpayers are counting on the tax-time cash infusion the most, according to the study by Qualtrics on behalf of Credit Karma.

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The announcement was welcomed by leaders in states that provided such payments.

“We, like millions of Coloradans, are breathing a sigh of relief that the IRS and federal government have stepped away from taxing our refunds this year. I will continue fighting to maintain this precedent that refunds under TABOR should never be taxed,” said Colorado Gov. Jared Polis.

The IRS noted that with the COVID-19 emergency ending in May, the ruling only applied to payments made in 2022. That means if states decide to issue additional stimulus checks, they could be subject to federal taxes next tax season.