Many of you heard about the Middle Class Tax Cut that California and New York (and Virginia and about 20 other states) issued this year. I warned clients (and the tax preparation firm I advise) when these began showing up as 1099s that we’ll have to see how that $ 200 to $ 1050 payments made by California (some 23 million Californians will be depositing about $ 9 billion for to cover inflation and higher gas prices); an average of $ 270 to those residing in New York (bottom portion of the income scale); Oregon with its $ 600 payment for low-income folks; Virginia’s hopes that theirs will be considered a tax refund (not a stimulus, sift o no itemization it would mean it is not taxable); and Georgia with $ 500 who filed a 2021 return, among others like Colorado, Illinois and South Carolina.)
It wasn’t clear if this would be a federal taxable event or not. The basic fact- if these funds were to be considered pandemic relief- rest assured these will be exempt from federal taxation. (They would than fall under the rubric of disaster relief.) If they were considered to be made for economic or inflation purposes, I see the taxman’s grasp close at hand.
And, so the IRS has ruled. Residents of Alaska, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island won’t owe a dime more in taxes. These payments are considered to be a disaster relief payment or promotion of the general welfare.
But, residents of Georgia, Massachusetts, South Carolina and Virginia may have to report state payments as income. But if the taxpayer did not itemize (or receive a tax benefit from this payment since it exceeded the 10K salt limitation) there will be no taxes due on these funds. ,
File away!
