Tax Byte

IRS Guidance in the Works on Tax Treatment of State Payments

Are certain middle class tax relief refunds and payments issued by states in 2022 subject to taxation? California says no; the IRS says it’s not sure… also, don’t call.

On the heels of a recent Procedurally Taxing post, the IRS released a statement noting that it is aware of taxpayer uncertainties involving special tax refunds or payments made by states during 2022 and is currently working with state tax officials to provide additional information on whether these payments are subject to federal tax.

The IRS released the following statement:

The IRS is aware of questions involving special tax refunds or payments made by states in 2022; we are working with state tax officials as quickly as possible to provide additional information and clarity for taxpayers. There are a variety of state programs that distributed these payments in 2022 and the rules surrounding them are complex. We expect to provide additional clarity for as many states and taxpayers as possible next week.

For taxpayers uncertain about the taxability of their state payments, the IRS recommends they wait until additional guidance is available or consult with a reputable tax professional. For taxpayers and tax preparers with questions, the best course of action is to wait for additional clarification on state payments rather than calling the IRS. We also do not recommend amending a previously filed 2022 return. (Internal  Revenue Service, 2022)


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