IRS Finally Issues Guidance On State Stimulus Checks

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A couple of weeks ago, the IRS urged taxpayers in several states to hold off filing returns in 2023 if they received relief checks last year. This resulted in a lot of confusion for taxpayers. Last week, the IRS finally issued guidance on state stimulus checks, confirming that most relief checks are not subject to federal taxes.

Guidance On State Stimulus Checks: What Did The IRS Say?

On Friday evening, the IRS issued federal tax guidance on state stimulus checks for millions of Americans who received relief checks from their state in 2022. The agency cleared up all the confusion, saying taxpayers don’t have to pay taxes on the state relief payments on their 2022 federal tax return.

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“The IRS has determined that in the interest of sound tax administration and other factors, taxpayers in many states will not need to report these payments on their 2022 tax returns,” the IRS said in a statement on Friday evening.

Along with clearing up the confusion on the taxability, the guidance on state stimulus checks clarifies how taxpayers should treat the relief payments. The IRS guidance also clarifies that taxpayers in affected states who have already filed their taxes, don’t need to edit their returns.

In its guidance, the IRS said it won't "challenge the taxability of payments related to general welfare and disaster relief," adding that taxpayers who received relief payments from states don’t need to show them on their 2022 federal tax return.

The clarification from the IRS comes almost three weeks after the start of the tax-filing season and after millions of taxpayers have already filed their federal returns. Moreover, the guidance from the IRS comes a week after the agency asked taxpayers in several states to hold off filing returns until it makes a decision on the federal taxability of the relief payments.


Relief Of Taxpayers In These States

Specifically, the IRS guidance on state stimulus checks is for taxpayers in the following states: New Jersey, New Mexico, New York, Idaho, Illinois, Indiana, California, Colorado, Connecticut, Pennsylvania, Rhode Island, Florida, Hawaii, Delaware, Maine and Oregon.

Taxpayers in Alaska are also included in this list, except for those who received money from Alaska's Permanent Fund Dividend. The money from this fund is taxable income on federal tax returns, the agency said.

The IRS guidance on state stimulus checks also applies to taxpayers in Georgia, Massachusetts, South Carolina, and Virginia, provided they meet the following criteria: the payment they received is a refund of state taxes paid; and the taxpayer either claimed the standard deduction or itemized their deductions but didn’t receive a tax benefit.

It must be noted that the agency offered no information for taxpayers who don’t meet the above requirements, whose state payments are federally taxable, and those who already filed their federal tax returns.

Further, the IRS clarified that any other payment from the state in the form of compensation to workers would be taxable on the federal level.