The IRS announced last Friday that most temporary relief checks issued by states in 2022 are not subject to federal income taxes, including the $662 energy-relief portion of last year’s $3,284 Alaska Permanent Fund dividend.
Alaska legislators last year added the energy-relief money to the annual PFD of $2,622 in a move to help residents hit hard by high prices for gasoline, diesel and heating fuel.
The IRS decision provides last-minute tax guidance as returns are starting to pour in.
The agency said it will not challenge the taxability of payments related to general welfare and disaster, meaning taxpayers in 21 states who received such checks in 2022 won’t have to pay federal taxes on the money.
The states handed out the payments to help residents cope with rising energy costs, inflation, lingering impacts of the pandemic and other financial strains.
“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 Friday evening in a statement.
In addition to Alaska, 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.
In addition, many taxpayers in Georgia, Massachusetts, South Carolina and Virginia also can avoid federal taxes on state payments if they meet certain requirements, the IRS said.
In California, most residents got a “middle class tax refund” last year, a payment of up to $1,050 depending on their income, filing status and whether they had children. The state Legislature approved the payments to help offset record high gasoline prices, which peaked at a high of $6.44 per gallon in June according to AAA.
A key question was whether the federal government would count those payments as income and require Californians to pay taxes on the money. Many California taxpayers had delayed filing their returns while waiting for an answer.
Maine was another example of states where the IRS stance had created confusion. More than 100,000 tax returns already had been filed as of last Thursday, many of them submitted before the IRS urged residents to delay filing their returns.
Gov. Janet Mills pressed for the $850 pandemic relief checks last year for most Maine residents to help make ends meet as a state budget surplus ballooned.
Her administration designed the relief program to conform with federal tax code to avoid being subject to federal taxes, said Sharon Huntley, spokesperson for the Maine Department of Administrative and Financial Services.
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