Early this month, The IRS has requested the delaying the tax return filing due to some issues related with state special payments. And The IRS provided details today clarifying the federal tax status involving special payments made by 21 states in 2022.
First of all, this doesn’t applys to Washington state taxpayer, only applys to California, Oregon, Alaska, Hawaii, New York, New Jersey etc. This means that people in the following states do not need to report these state payments on their 2022 tax return. In addition, many people in some states also will not include state payments in income for federal tax purposes if they meet certain requirements.
Generally, payments made by states are includable in income for federal tax purposes, but there are exceptions that would apply to many of the payments made by states in 2022. A variety of state programs distributed these payments in 2022 and the rules surrounding their treatment for federal income tax purposes are complex. While in general payments made by states are includable in income for federal tax purposes, there are exceptions that would apply to many of the payments made by states in 2022.
Other payments that may have been made by states are generally includable in income for federal income tax purposes. This includes the annual payment of Alaska’s Permanent Fund Dividend and any payments from states provided as compensation to workers.