The Internal Revenue Service recently announced that it won’t tax most state relief checks – but the announcement came more than two weeks after tax season opened on Jan. 23.
So what should taxpayers who already filed their federal taxes and declared the money as income do now?
“My advice would be don’t do anything drastic just yet,” tax attorney Adam Brewer told Nexstar. “Wait to see if the IRS provides some guidance here because we’ve really kind of been chasing our tail on this whole issue.”
In California, where many residents received a Middle Class Tax Refund, they were also mailed a 1099-MISC tax form, which is used to report payments of at least $600.
“First [we’re] telling people that well, because there’s a 1099 Miscellaneous issued it’s taxable, and then the IRS comes back, you know, a month later and says actually, we’re not going to treat it as taxable,” Brewer said. “So I think the last thing we want to do right now is have people go through the extra trouble of filing amended returns when the IRS could very well issue a new policy that says they’re going to make the adjustments on their side.”
Some taxpayers found themselves in a similar situation in 2021 when the American Rescue Plan Act changed rules around unemployment, and instead of asking individuals to refile, the IRS made the corrections for them.
The states where relief payments do not have to be reported by taxpayers are California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. That also applies to energy relief payments in Alaska that were in addition to the annual Permanent Fund Dividend, the IRS said in a recent announcement.
Taxpayers in four other states – Georgia, Massachusetts, South Carolina and Virginia – will also not need to include state payments on their federal returns, as long as the payment was a refund of state taxes and the individual did not already receive a tax benefit in the year the taxes were deducted.