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Guidance on State Tax Payment – IRS

That state tax refund you just got is a nice little chunk of change; but, before you spend it, ask yourself this: Will I need to pay taxes on it when I file taxes next year?
That state tax refund you just got is a nice little chunk of change; but, before you spend it, ask yourself this: Will I need to pay taxes on it when I file taxes next year?

Today, information from the Internal Revenue Service or IRS was made available to clarify the federal tax status of extraordinary payments made in 2022 by 21 states.

The IRS has ruled that taxpayers in many states won’t need to declare these payments on their 2022 tax returns in the interest of sound tax administration and other criteria.

Tax law changes prompt IRS to move income tax deadline by a month

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If they meet certain criteria, many taxpayers in Georgia, Massachusetts, South Carolina, and Virginia will also choose not to include state contributions in their income for federal tax reasons. If the payment is a refund of state taxes already paid and the receiver either claimed the standard deduction or itemized their deductions but did not earn a tax benefit, state payments will not be included for federal tax reasons for these people.

The IRS is grateful for everyone’s patience while the IRS and Treasury worked to settle this unusual and complicated situation, including taxpayers, tax experts, software providers, and state tax administrators.

The IRS is aware of inquiries relating to extraordinary tax refunds or payments made by specific states in connection with the pandemic and its effects in 2022. These payments were issued in 2022 by a number of state programs, and the regulations governing how they should be treated for federal income tax reasons are complicated. There are exceptions to the general rule that payments made by states are deductible from income for federal tax purposes, but many of the payments made by states in 2022 would fall under one of these exceptions.

The IRS is offering the extra details below to help taxpayers who have received these payments file their taxes on time.

Read More: IRS: Unsure If The 2022 Special Payments Should Be Subjected To Federal Taxes

 

Payment of state taxes refunded

If the recipient itemized their deductions or claimed the standard deduction but did not obtain a tax advantage (for instance, because the $10,000 tax deduction limit applied), the payment is not considered income for federal tax purposes if it is a refund of state taxes paid.

Unless the receiver got a tax benefit in the year the taxes were deducted, payments from the following states in 2022 fall under this category and will not be considered income for federal tax purposes.

 

Georgia

Massachusetts

Carolina, South

Virginia

That state tax refund you just got is a nice little chunk of change; but, before you spend it, ask yourself this: Will I need to pay taxes on it when I file taxes next year?

That state tax refund you just got is a nice little chunk of change; but, before you spend it, ask yourself this: Will I need to pay taxes on it when I file taxes next year?

Payments for general welfare and disaster relief

Given the difficult fact-specific nature of determining the treatment of these payments for federal tax purposes balanced against the need to provide certainty and clarity for people who are currently attempting to file their federal income tax returns, the IRS has reviewed the types of payments made by various states in 2022 that may fall into these categories.

 

The IRS has decided that if a taxpayer does not include the amount of one of these payments in its 2022 income for federal income tax purposes, the IRS will not challenge the treatment of the 2022 payment as excludable for income on an original or amended return. This is because the pandemic emergency declaration expires in May 2023, making this an issue only for the 2022 tax year.

 

For federal tax reasons, payments provided for the promotion of the general welfare or as disaster relief payments, like as those for the ongoing epidemic, may qualify as Qualified Disaster Relief Payments and be excluded from income. A rigorous fact-intensive inquiry that depends on a number of factors determines whether payments fall under these exceptions.

 

The following states’ payments fit under this category, and the IRS won’t object to their categorization as excludable for federal income tax purposes in 2022.

 

State State payment program and link to state website
Alaska Energy Relief Payment (supplementing the Permanent Fund Dividend)

Permanent Fund Dividend | Alaska Department of Revenue

California Middle Class Tax Refund

Middle Class Tax Refund | California Franchise Tax Board

Colorado Colorado Cash Back

TABOR Refund Mechanism For FY 2021-22 Only | Colorado General Assembly

Connecticut Child Tax Rebate

2022 Child Tax Rebate (ct.gov)

Delaware Relief Rebate Program

2022 Delaware Relief Rebate Program | Department of Finance (delaware.gov)

Florida Pandemic Temporary Assistance to Needy Families

Hope Florida – A Pathway to Prosperity | Florida Department of Children and Families

Hawaii Act 115 RefundAct 115 Refund | Hawaii Department of Taxation
Idaho 2022 Tax Rebate

2022 Tax Rebates: Frequently Asked Questions | State Tax Commission (idaho.gov)

Illinois Individual Income Tax Rebate

2022 State of Illinois Tax Rebates | Illinois Department of Revenue


Property Tax Rebate

2022 State of Illinois Tax Rebates | Illinois Department of Revenue

Indiana Automatic Taxpayer Refund #1Automatic Taxpayer Refund #2

Automatic Taxpayer Refund | Indiana Department of Revenue

Maine Pandemic Relief Payments

2022 Relief Checks | Maine Revenue Services

New Jersey ITIN Holders Director Assistance Program

ITIN Holders Direct Assistance Program | New Jersey Division of Taxation

New Mexico Multiple rebate and relief programs

New Mexico Families Eligible for Household Relief : Taxation and Revenue New Mexico

New York Supplemental Child Credit and Supplemental Earned Income Tax Credit

Additional New York State child and earned income tax payments (ny.gov)

Oregon One-Time Assistance Payments

One Time Assistance Payments | Oregon Department of Revenue

Pennsylvania One-Time Bonus Rebates

One-Time Bonus Property Tax/Rent Rebates | Pennsylvania Department of Revenue

Rhode Island 2022 Child Tax Rebates

2022 Child Tax Rebates | Rhode Island Division of Taxation

In general, such contributions that the states may have made are deductible from income for federal income tax purposes. This includes any payments from states made as worker compensation, such as the Permanent Fund Dividend paid annually by Alaska.

 

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