State stimulus checks: IRS plans to rule whether these payments are taxable this week

The Internal Revenue Service is expected to provide more guidance this week on whether stimulus checks that states issued in 2022 are considered taxable income on federal returns.

The agency urged taxpayers who are uncertain about the taxability of their state’s payments to hold off on filing their federal taxes until guidance is released, according to the agency’s announcement.

How these payments are treated could affect residents in at least 19 states that issued tax rebates after a revenue surplus or relief payments to help folks weather higher prices last year.

“The IRS is aware of questions involving special tax refunds or payments made by states in 2022,” the agency said in its release. “We are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers.”

Another reason California’s payments could be taxable on the federal level is that high-income individuals also qualified for the checks. Joint filers earning up to $500,000 received as much as $600, while single filers making up to $250,000 could get up to $400 in the program.

“Providing the payments to individuals with high income levels where there is no financial or other need likely means that no one receiving the payments under the program can get relief under the general welfare exclusion,” Nellen said.

California’s two previous stimulus checks that were issued in 2021 were not taxable for federal purposes as they were considered “disaster relief payments,” according to Gregory Kling, CPA and associate professor at University of Southern California’s Leventhal School of Accounting.

This year, though, taxpayers should probably assume the worst when it comes to the taxability of relief payments, he said.

“My approach is always to assume that state stimulus checks are taxable unless we are told otherwise,” Kling wrote in an email to Yahoo Finance. “Tax law says that income from whatever source derived is taxable unless there is a specific provision in the tax law that says it is not taxable.”

Besides California, 18 other states issued state stimulus and rebate checks last year, including Alaska, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Massachusetts, Minnesota, New Jersey, New Mexico, Oregon, Rhode Island, South Carolina, and Virginia, according to an accounting from Forbes Advisor.

Rebecca is a reporter for Yahoo Finance.

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance app for Apple or Android

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube

Source: Read Full Article