Almost 50 million Individuals received stimulus checks or state tax refunds in 2022, and the IRS has determined which of these amounts is due to federal income tax.
Those who got special tax rebates or incentives from their state governments should postpone filing their 2022 taxes until further information is available, the IRS warned on February 3. The group clarified that a week later, claiming that many state taxpayers would not be required to disclose these contributions.
Who Will Pay Federal Stimulus Checks Taxes?
The IRS clarified who will be required to pay federal taxes on stimulus payments issued by 21 states after advising residents of those states who received “special tax refunds or payments” to postpone submitting their 2022 tax returns.
Residents of states that made payments related to the general welfare and disaster relief are not required to record these payments on their 2022 tax returns, according to the government. California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhode Island are the states that are impacted by this payment designation for the general welfare and disaster relief.
To successfully avoid a prospective audit, you will need to be aware of certain requirements whether you reside in Alaska, Georgia, Massachusetts, South Carolina, or Virginia.
Every year, Alaska distributes a Permanent Fund Dividend (PFD) to its citizens. It gave each qualified adult and child $3,284 in 2022. According to the State of Alaska Department of Revenue, Alaskans will only be required to pay a portion of the relief monies received in federal tax. The 2022 PFD has a taxable amount of $2,622.
The additional Energy Relief Payment ($662) is the source of the non-taxable part.
Whether you choose to itemize your deductions or take the standard deduction on your tax return will determine whether you must pay federal tax on stimulus funding in Georgia, Massachusetts, South Carolina, and Virginia. Market Realist states that you won’t have to report your state stimulus payment as income if:
- The amount is a return of state taxes already paid, and
- the beneficiary filed a standard deduction claim, or
- The recipient claimed itemized deductions, but no tax advantage.
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States Tax Refunds
According to the IRS news release, citizens of these four states who itemized deductions and benefited from such deductions in 2022 will be required to pay taxes on state-issued stimulus checks.
Stimulus funds are regarded as reimbursement of state taxes paid in these states. This is due to a potential overclaim of a deduction that could alert IRS auditors. On their federal tax return, taxpayers are allowed to deduct up to $10,000 in state taxes.
The amount of the state stimulus check, which is regarded as a refund of state taxes already paid, will be deducted from the filer’s net state tax payment.
The state payment must be reported as income on a taxpayer’s federal tax return if they earned a tax advantage in the year the taxes were deducted.
The IRS may flag a stimulus check recipient for overclaiming their state tax deduction if they claim their whole state tax deduction, including the state stimulus amount. Taxes will be slightly higher if the same person claims the deduction but excludes the state stimulus amount.
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