Several states provided individuals with special payments in 2022, leaving uncertainty as to how they would be treated for federal tax purposes. In response, the IRS initially advised taxpayers in those states to wait for clarification before filing returns as they worked to better understand these programs. A week later, the IRS provided guidance in IR-2023-23 on its conclusions. While state payments are generally includable in federal taxable income, it was determined that many 2022 state payments relate to general welfare or disaster relief and therefore may be excluded.
Payments from the following states related to the promotion of general welfare or disaster relief may be excluded from federal taxable income in 2022:
- New Jersey
- New Mexico
- New York**
- Rhode Island
For a list of specific state payments to which this exclusion applies, the IRS provides this chart along with its guidance.
*Only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend.
**Illinois and New York issued multiple payments and in each case one of the payments was a refund of taxes, which should be treated under the normal state tax refund rules, and one of the payments is in the category of disaster relief payment.
The IRS determined that if payments from the following states are considered refunds of state taxes, they may or may not be included into federal taxable income depending on the tax benefit rules and an individual’s set of facts:
- South Carolina
Payments from states that are compensation to workers will be federally taxable.
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