IRS update: Do you need to report ‘special payments’ for welfare or disaster relief on your tax return?
New information has been published to assist Americans who have been affected by the wealth of natural disasters in the last year.
The IRS announced that people in a number of states will not need to pay tax on state disaster payments on their tax return. These payments include the Middle Class Tax Refund in California which was sent out from the summer to the winter of last year. It was not known until this statement was released whether payments like this would count as taxable income.
“The IRS appreciates the patience of taxpayers, tax professionals, software companies and state tax administrators as the IRS and Treasury worked to resolve this unique and complex situation,” the IRS said Friday evening in a statement.
There are 21 states affected:
- 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
Taxpayers in many places will not need to report special state payments on their 2022 federal tax returns. See the latest #IRS update at: https://t.co/640REwlVlJ pic.twitter.com/npLSsyd7un
— IRSnews (@IRSnews) February 10, 2023
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You might notice that this list does not include 21 states. That is because the rest have more complicated situations.
If the disaster payment was a refund of state taxes, and the recipient claimed the standard deduction, then the payment is not included as taxable income. The states affected are:
- Georgia
- Massachusetts
- South Carolina
- Virginia