IRS Releases Guidance on Taxability of Certain State Payments Made in 2022

BRC News and AlertsIRS Releases Guidance on Taxability of Certain State Payments Made in 2022

The IRS recently released guidance (IR-2023-23) regarding the taxability of certain payments that were made by states during 2022 to individuals and whether or not they must be included in taxable income on the individuals 2022 tax return. The payments are broken down into two categories:

Refund of State Taxes Paid

“If the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied) the payment is not included in income for federal tax purposes.

Payments from the following states in 2022 fall in this category and will be excluded from income for federal tax purposes unless the recipient received a tax benefit in the year the taxes were deducted.”

  • Georgia
  • Massachusetts
  • South Carolina (this would be the “SC Rebate Payment”)
  • Virginia

​​​​​​​General Welfare and Disaster Payments

The general rule is that if a payment falls under the “General Welfare Doctrine” or meets the definition of a “Qualified Disaster Relief Payment” then it is not taxable to the individual who receives the payment. Due to the complexities of these rules and the large number of payments being made during 2022 by the states that may qualify under one of these provisions, the IRS has provided a list of payments that taxpayers may treat as non-taxable on their 2022 tax return without the need for any additional analysis or determinations needing to be made.

Click Here – for a full list of the payments the IRS has deemed not taxable

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The information contained in this article is for informative purposes only and should not be relied on when making any business, legal, or other decisions. This information may be updated without notice and/or may not contain the most current information that is available related to this topic. Please consult with your advisor to determine how this information applies to your specific facts and circumstances.