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When do you have to pay your taxes if you received relief checks?

Recipients of the California Middle Class Tax Refund and similar state-funded programs have been advised by the IRS to delay their tax return.

IRS tells certain filers to hold off on their tax filing
Andrew KellyREUTERS

Tax season 2023 is now well underway, but the IRS is advising that recipients of the various state-organised relief checks should hold off on their submission for now.

The tax agency is yet to decide whether these relief programs – like California’s Middle Class Tax Refund – should be subject to taxation. The IRS released a statement earlier this month telling filers who received a payment during 2022 to delay their tax return filing for now:

“The IRS is aware of questions involving special tax refunds or payments made by states in 2022; we are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers.

“There are a variety of state programs that distributed these payments in 2022 and the rules surrounding them are complex. We expect to provide additional clarity for as many states and taxpayers as possible next week.”

The Associated Press lists 19 states that authorised payments of this kind during 2022: Alaska, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Massachusetts, Minnesota, New Jersey, New Mexico, Oregon, Rhode Island, South Carolina, and Virginia.

Bear in mind that this advice from the IRS only applies to the state-funded relief payments sent out in 2022, not the federal stimulus checks or Child Tax Credit payments that were overseen by the federal government.

When will the IRS decide whether relief checks are taxable income?

At time of writing further guidance has not been forthcoming and millions of taxpayers are left in limbo. For those expecting a tax refund, this delay means a longer-than-normal wait for the payment to arrive in their accounts.

The IRS’ statement says that a decision could come at some point this week, but nothing has been publicised yet. Notably, the language used suggests that taxpayers in different states could receive a verdict at different times. This could further complicate the process for filers.

In many states the 2022 relief payments were funded from tax income and were essentially budgeted as an advanced tax refund for recipients. This means that they will not be subject to state taxes, but the IRS is attempting to decide whether these payments should still be taxed at a federal level.

If you received one of these payments and have already submitted your tax filing, the IRS does not recommend amending your return at this stage.