So You Got a Special Check from Your State in 2022? How to Deal with It on Your Taxes

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You may not have to report tax-rebate or pandemic-relief-type checks you received from your state in 2022 on your federal taxes.

Twenty-one states, many of which are home to major military installations, sent out payments, including some states that are home to large military and veteran populations. The payments presented a "unique and complex situation" that the IRS had to figure out.

The IRS reported in a statement Feb. 10 that "in the interest of sound tax administration and other factors," most such payments won't be federally taxable except in a few situations.

While many service members file state taxes to their military home of record, their spouses may file them in the state in which they live and work, depending on a variety of factors. And many of the states that issued special checks are also home to large veteran populations, including Florida, Alaska and Virginia.

Colorado, for example, mailed taxpayers $750 for single filers and $1,500 for joint filers, and the IRS says the federal government won't tax that money. Alaska's Permanent Fund Dividend payments remain taxable, but the state's one-time, $662 relief payments for energy costs won't be taxed.

States Where Special Payments Won't Be Taxed

The IRS says the federal government won't challenge the exclusion of "special payments" made by the following states, which were made "for the promotion of the general welfare or as a disaster relief payment":

  • Alaska (The one-time Energy Relief Payment will not be taxed. The annual Permanent Dividend Fund payment is taxable as usual.)
  • California
  • Colorado
  • Connecticut
  • Delaware
  • Florida
  • Hawaii
  • Idaho
  • Illinois (Out of two payments issued, the tax rebate should be treated as the states in the below list; and the pandemic relief treated as a disaster relief payment and not taxed.)
  • Indiana
  • Maine
  • New Jersey
  • New Mexico
  • New York (Out of two payments issued, the tax rebate should be treated as the states in the below list; and the pandemic/inflation relief treated as a disaster relief payment and not taxed.)
  • Oregon
  • Pennsylvania
  • Rhode Island

States Where Special Payments May or May Not Be Taxed

The federal government won't tax special payments in the following states unless "the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit ... (for example, because the $10,000 tax deduction limit applied)":

  • Georgia
  • Massachusetts
  • South Carolina
  • Virginia

State Payments That Remain Taxable

In addition to Alaska's Permanent Dividend Fund, money paid to workers as compensation generally must be included on your federal tax return.

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