Refund of state taxes paid
The IRS has concluded that the special payments from the following states in 2022 are treated as a refund of state taxes paid, and the appropriate analysis under the general state tax refund rules should be made.
- Georgia
- Massachusetts
- South Carolina
- Virginia
Under general rules, if the payment is a refund of state taxes paid, the payment is excluded from federal income tax unless the recipient received a tax benefit in the year the taxes were deducted on the federal income tax return. Thus, the recipient does not need to include the payment in income if the recipient claimed the standard deduction or the taxpayer itemized deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied) in the year the state taxes were deducted.
General welfare and disaster relief payments
The IRS has determined that the special payments from the following states in 2022 were made for the promotion of the general welfare or as a disaster relief payment and are excluded from income for federal tax purposes.
| State | State Payment Program |
| Alaska* | Energy Relief Payment (supplementing the Permanent Fund Dividend) |
| California | Middle Class Tax Refund |
| Colorado | Colorado Cash Back |
| Connecticut | Child Tax Rebate |
| Delaware | Relief Rebate Program |
| Florida | Pandemic Temporary Assistance to Needy Families |
| Hawaii | Act 115 Refund |
| Idaho | 2022 Tax Rebate |
| Illinois** | Individual Income Tax Rebate/Property Tax Rebate |
| Indiana | Automatic Taxpayer Refund #1/Automatic Taxpayer Refund #2 |
| Maine | Pandemic Relief Payments |
| New Jersey | ITIN Holders Director Assistance Program |
| New Mexico | Multiple rebate and relief programs |
| New York** | Supplemental Child Credit and Supplemental Earned Income Tax Credit |
| Oregon | One-Time Assistance Payments |
| Pennsylvania | One-Time Bonus Rebates |
| Rhode Island | 2022 Child Tax Rebates |
*Exclusion is only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend.
**The IRS stated that "Illinois and New York issued multiple payments and in each case one of the payments was a refund of taxes, which should be treated as noted above, and one of the payments is in the category of disaster relief payment." It seems that additional guidance from the IRS is needed here to identify the tax treatment of specific payments.
Other payments
The IRS adds that other payments that may have been made by states (e.g., payments from states provided as compensation to workers) are generally includable in income for federal income tax purposes.
This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
The Retirement Group is not affiliated with nor endorsed by your company. We are an independent financial advisory group that focuses on transition planning and lump sum distribution. Neither The Retirement Group or FSC Securities provide tax or legal advice. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.
The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.
Tags: Financial Planning, Tax, Retirement, IRS, 2023
