For the most part, state inflation checks you received in 2022 won’t be taxable on the state or federal levels. There are, however, some exceptions.
Keep reading to find out what you need to know.
What Are State Inflation Relief Checks?
In 2022, 21 states provided their residents with special payment programs — many attempting to compensate for the skyrocketing inflation. These payments took the form of general welfare and disaster relief disbursements and refunds of state taxes people paid.
“Every state is different in who qualifies and for how much. Take for example, New Jersey’s Affordable New Jersey Communities for Homeowners and Renters $2 billion property tax relief program,” Nicole DeRosa, certified public accountant and senior tax manager at accounting firm Wiss & Company LLC, says.
“Homeowners who made up to $150,000 during 2019 could receive $1,500 in property tax refunds and those who made between $150,000 and $250,000 could receive $1,000. In addition, tenants who made up to $150,000 could receive checks for $450,” she says.
“Another example is the California middle class tax refund, where eligible taxpayers could receive up to $1,050 of a one-time refund, depending on their 2020 California adjusted gross income and dependency exemptions,” DeRosa says.
[MORE: Economic Uncertainty On Tap for the Week]
Are State Inflation Relief Checks Taxable?
Most state inflation checks will not be taxable. Here’s how taxation works for the programs on the state and federal levels:
State Inflation Relief Checks Federal Taxation
On February 10, 2023, the IRS released guidance on the taxation of 2022’s special payments, often referred to as inflation relief checks.
It divided the compensation into two categories: general welfare and disaster relief payments and refunds of state taxes paid.
General Welfare and Disaster Relief Payments
The IRS categorized the special payments it made in the following states as general welfare and disaster relief payments. You do not need to include them as income on 2022 federal income tax returns.
— California.
— Colorado.
— Connecticut.
— Delaware.
— Florida.
— Hawaii.
— Idaho.
— Illinois.
— Indiana.
— Maine.
— New Jersey.
— New Mexico.
— New York.
— Oregon.
— Pennsylvania.
— Rhode Island.
— Alaska (only for the Supplemental Energy Relief Payment).
[READ: What Is Inflation? What Rising Inflation Means For You.]
According to the IRS website, ” … 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.”
Note: Illinois and New York each issued two special payments in 2022. In both cases, one was a disaster relief payment and one was a state taxes paid refund, so you’ll see both states on both lists here. Residents don’t need to report the disaster relief payments but might have to report the state taxes paid refund.
State Taxes Paid Refunds
The following states offered refunds for state taxes paid. If you got one, the IRS says you don’t need to report it as income on your federal taxes if you claim the standard deduction.
— Georgia.
— Massachusetts.
— South Carolina.
— Virginia.
— Illinois.
— New York.
You also don’t need to report it if you itemize deductions but don’t receive a tax benefit from doing so. If you itemize deductions and save more than you would with the standard deduction, however, you’ll need to report the special payment as income.
The exclusion of state inflation relief checks from income for federal purposes is an exception. The IRS generally requires you to include payments you receive from state governments on your federal tax return — like if you receive Alaska’s Permanent Fund Dividend each year.
[READ: Understanding Federal vs. State vs. Local Taxes.]
Inflation Relief Checks State Taxation
“Taxes on inflation relief checks depend on a few different factors. The money is not taxable at the state level, but it may be subject to federal taxes depending on your income level and other circumstances,” Dana Ronald, president of the Tax Crisis Institute, says.
Most states explicitly state that the special payments and refunds are not taxable at the state level. If you have any doubts, consult a tax professional in your state to ensure all you meet your liabilities.
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Are State Inflation Relief Checks Taxable? originally appeared on usnews.com
