(NEXSTAR) – After a week of uncertainty, the IRS announced Friday that most relief checks sent to residents in more than a dozen states last year won’t be taxed at the federal level.
The announcement clears up a taxation situation so “complex” that it required the IRS to advise taxpayers to delay filing their returns until the agency could work with local officials to determine its guidance. According to the IRS, 21 states issued special payments.
“The IRS appreciates the patience of taxpayers, tax professionals, software companies, and state tax administrators as the IRS and Treasury worked to resolve this unique and complex situation,” the IRS said.
The states where the relief checks do not have to be reported by taxpayers are California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhode Island. That also applies to energy relief payments in Alaska that were in addition to the annual Permanent Fund Dividend, the IRS said.
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Taxpayers in four other states – Georgia, Massachusetts, South Carolina, and Virginia – will also not need to include state payments on their federal returns, as long as the payment was a refund of state taxes and the individual did not already receive a tax benefit in the year the taxes were deducted.
Unlike pandemic-era stimulus checks, 2022’s state-level relief payments came in various forms, making it harder for the IRS to issue guidance and forcing the agency to call for a pause in filing well after tax season had already begun.
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In California, for instance, residents who met the income, filing status, and dependent requirements received checks ranging from $200 to $1,050 as part of the Middle-Class Tax Refund (MCTR).
In Illinois, qualifying residents received one-time payments of up to $700 under the Illinois Family Relief Plan. Making matters more complicated, the checks consisted of two different rebates: one for individual income tax and another for property tax.
Maine was another example of a state where the IRS stance had created confusion. More than 100,000 tax returns had already been filed as of Thursday, many of them submitted before the IRS urged residents to delay filing their returns.
Democratic Gov. Janet Mills pressed for the $850 pandemic relief checks last year for most Mainers to help make ends meet as a budget surplus ballooned.
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Her administration designed the relief program to conform with the federal tax code to avoid being subject to federal taxes or included in federal adjusted gross income calculations, said Sharon Huntley, spokesperson for the Department of Administrative and Financial Services.
Senate President Troy Jackson called the confusion caused by the IRS “harmful and irresponsible.”
“Democrats and Republicans worked together to create a program that would comply with federal tax laws and deliver for more than 800,000 Mainers,” the Democrat from Allagash said in a statement Friday.
The Associated Press contributed to this report.