Taxes 2023: IRS tells California most state tax refunds do not qualify as taxable income

Relief payments complicate tax season

Government relief payments and rebates complicate tax season 04:27

Taxpayers in more than 20 states who received tax refunds in the past year received some notices from the IRS after the agency asked them to hold off filing their tax returns. It was questionable whether the IRS would consider these payments as taxable income.

The IRS said Friday that taxpayers in “many states” are not required to report the payments on their 2022 tax returns due by April 18 this year.

California and more than 20 other states approved tax refunds last year as their coffers were bolstered by strong economic growth and federal pandemic assistance, with a goal to help their residents offset inflation and the costs of the pandemic. But on Feb. 3, the IRS asked people who received a rebate to wait before filing their taxes, citing whether the checks needed to be reported as income.

On Friday, the IRS said taxpayers, for the most part, are not required to report the rebates on their tax returns.

“During a review, the IRS determined that it will not challenge the taxation of payments related to public welfare and disaster relief,” he noted.

The states where residents who received rebates and are not required to report them as income are:

Alaska (but only for the additional energy relief payment received; the Permanent Fund annual dividend is normally taxable at the federal level.) California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island

The IRS added that many people in the following states are not required to report their rebate checks as income if they meet some requirements. For example, this is the case when the refund is a refund of paid state taxes and the taxpayer claimed the standard deduction or itemized deductions but did not receive a tax benefit, the IRS said. These states include:

GeorgiaMassachusettsSouth CarolinaVirginia

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