The Internal Revenue Service says taxpayers in 17 states will not have to pay federal income tax on state rebates and special payments received in 2022. Filers in four other states, including Georgia, may have to include those payments on their federal tax forms.
The guidance comes one week after the IRS advised taxpayers to wait to file their returns until the agency could determine whether the state payments were taxable income.
“The IRS has determined that in the interest of sound tax administration and other factors, taxpayers in many states will not need to report these payments on their 2022 tax returns,” the agency’s statement says.
During a review, the IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief. This means that people in the following states do not need to report these state payments on their 2022 tax return: Alaska, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhode Island.
In addition, many people in Georgia, Massachusetts, South Carolina, and Virginia also will not include state payments in income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes 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.
The IRS released a statement Friday announcing its decision.
“The IRS appreciates the patience of taxpayers, tax professionals, software companies, and state tax administrators as the IRS and Treasury worked to resolve this unique and complex situation,” the statement reads.
