State-specific disaster relief payments may not need to be claimed on 2022 taxes

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Taxpayers in nearly two dozen states have been affected by these payments

As tax season kicks off and consumers prepare for filing, it’s normal for questions and concerns to pop up. 

For taxpayers in 21 states, specific tax state payments related to the COVID-19 pandemic or other disaster relief efforts may have been causing confusion. Now, the Internal Revenue Service (IRS) is clearing up any questions taxpayers may have about this situation. 

“The IRS is aware of questions involving special tax refunds or payments made by certain states related to the pandemic and its associated consequences in 2022,” the IRS wrote in its guidance.

“A variety of state programs distributed these payments in 2022 and the rules surrounding their treatment for federal income tax purposes are complex. While in general payments made by states are includable in income for federal tax purposes, there are exceptions that would apply to many of the payments made by states in 2022.” 

What states are included? 

Ultimately, the IRS determined that any payments made related to disaster relief or general welfare will not be challenged, and taxpayers aren’t required to report them on their 2022 taxes.

The following states will not have to report these special state payments on their taxes: Alaska, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhode Island. 

However, there are a number of other states with some exceptions. Taxpayers located in Virginia, Georgia, South Carolina, and Massachusetts will also be excluded from claiming these payments as income if the payment was a refund of state taxes that were paid. 

The IRS explained that as of May 2023, the COVID-19 pandemic will no longer be considered an emergency. This means that any state-specific payments related to the pandemic will only affect taxpayers when filing their 2022 taxes. 

While filers would typically be required to include such payments in their taxable income, withholding these payments for 2022 taxes will be permissible. 

A full list of acceptable payments for taxpayers to be aware of can be found here.

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