In which states do you have to pay taxes on relief checks?
IRS guidance was published to notify taxpayers on how the tax system will interact with disaster and relief payments sent out over the last 12 months.
A fresh IRS press release has clarified that millions of Americans that received state support in paying their bills this year will not need to pay tax on the money received as part of their federal tax return.
Many of the states that sent out a form of relief payment in 2022 is covered by the tax change, so no one receiving the support will have to pay tax upon it.
If you owe the #IRS, it’s your right to know how much tax, interest and penalties are part of your balance. That’s your right to be informed--the first right of the Taxpayer Bill of Rights. Learn more about what that means for you in our #IRSTaxTip: https://t.co/y9f63UZLJ7 pic.twitter.com/lHP8oF7yDA
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There are 21 states affected. If your state is not listed below then you will be paying federal taxes on the money you received:
- Alaska (Only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend)
- California
- Colorado
- Connecticut
- Delaware
- Florida
- Hawaii
- Idaho
- Illinois
- Indiana
- Maine
- New Jersey
- New Mexico
- New York
- Oregon
- Pennsylvania
- Rhode Island
The IRS has published a breakdown explaining which support payments are affected.
The states with a few extra stipulations
For the four states below, their 2022 payments are to be excluded from federal income taxes in all cases apart from filers who itemise their tax deductions and claim the the state and local tax (SALT) deduction up to $10,000. The states affected are:
- Georgia
- Massachusetts
- South Carolina
- Virginia
Economists spoke to CNBC to explain in simpler terms how taxpayers in these states are affected.
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“A person who pays $5,000 in state taxes then receives a $1,000 rebate check is, in effect, paying $4,000 in state taxes,” says Jared Walczak, vice president of state projects for the Tax Foundation. “If they are able to claim $5,000 on their federal income tax return under the SALT deduction, they are receiving an excess tax benefit.
”In that case, you’d include $5,000 as part of your SALT deduction but count the $1,000 as taxable income, which is “functionally the same as only deducting $4,000,” says Walczak.