The Internal Revenue Service said Tuesday that taxpayers who filed their federal income taxes early this year and reported state tax refunds they received in 2022 as taxable income should consider filing an amended return to get back taxes paid on what the IRS has determined are tax-free payments.
In early February, the IRS urged taxpayers to hold off on filing their returns after questions arose about the taxability of refunds and rebates provided by California and other states last year to help taxpayers deal with inflation and other issues. The agency promised to provide guidance within a week’s time and soon announced that for most of the 21 states affected, the special state payments and rebates would not need to be included in income.
That means people in the following states do not need to report these state payments on their 2022 tax return: California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. Alaska is in this group as well, but the determination applies only to the special supplemental Energy Relief Payment received.
Taxpayers can view a list of states and the federal tax treatment of their special state refunds or rebates on this online chart.
Many taxpayers in Georgia, Massachusetts, South Carolina, and Virginia will not need to include special state 2022 tax refunds as income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and the recipient either claimed the standard deduction for tax year 2022 or itemized their tax year 2022 deductions but did not receive a tax benefit.
Taxpayers who filed before Feb. 10 in these areas and meet these requirements (or their tax preparers) should check their tax return to make sure whether they paid tax on a state refund before filing an amended return.
If an amended return is needed, taxpayers who submitted their original 2022 tax return electronically can now file an amended return electronically and select direct deposit for any tax refund.
Taxpayers can also submit a paper version of the Form 1040-X, “Amended U.S Individual Income Tax Return” and receive a paper check, but direct deposit is not available for amended returns submitted on paper.
