The Internal Revenue Service has determined that you probably do not need to pay federal taxes if you received state-issued relief checks this year.
The IRS requested last week that recipients delay filing their tax returns until the agency could confirm whether various rebates in 21 states qualify as income based on their stated purpose.
These Residents Likely Won’t Need To Pay Federal Taxes
Friday, the IRS issued guidance confirming that the majority of filers will not be required to pay federal taxes, with a few exceptions.
In the states of California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhode Island, residents are exempt from paying federal income taxes. The IRS has provided this chart with a list of specific payment types.
For five additional states, the situation is a bit more complicated, but the vast majority of filers in these states will likely not be required to pay federal taxes on their rebates.
In Alaska, federal taxes will not be imposed on the 2022 extra energy-relief payment. The agency clarified that the annual Permanent Fund Dividend payment derived primarily from oil revenues is still subject to federal taxes.
Special 2022 payments will be exempt from federal income taxes in Georgia, Massachusetts, South Carolina, and Virginia, according to the IRS, except for filers who itemize their tax deductions and claim the state and local tax (SALT) deduction of up to $10,000.
If a filer’s SALT deduction is greater than it would normally be due to a state rebate, federal taxes must be paid on the difference. The only exception is if the total state tax deduction, minus the rebate, exceeds the $10,000 SALT cap. In such a scenario, no federal taxes are due.
In this case, you would include $5,000 as part of your SALT deduction and $1,000 as taxable income, which is functionally equivalent to deducting only $4,000.
Read more: Inflation relief checks: IRS won’t require these states to report their payments; Here’s why!
Michigan Relief Checks
Meanwhile, Gov. Gretchen Whitmer, a Democrat, and legislative Republicans, who both claim to want to aid Michigan residents in coping with inflation, are currently at odds over tax relief legislation.
Last year, when Whitmer vetoed two sizable GOP tax cut proposals, the dynamics were very different. Despite the fact that Democrats currently hold both the House and the Senate, passing legislation is still difficult due to their slim two-seat majorities.
The Senate is anticipated to vote in favor of legislation that would send rebate checks to all Michigan taxpayers, increase the Earned Income Tax Credit for workers with lower incomes, and eliminate the so-called retirement tax on pension income on Tuesday.
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