CyberTax Alert: VTA 2023-05 State Tax Payment Guidance
AARP Foundation Tax-Aide CyberTax Alert
March 15, 2023
To: All AARP Foundation Tax-Aide Volunteers (with a valid email address in the Volunteer Portal)
From: Lynnette Lee-Villanueva, Vice President and National Director, AARP Foundation Tax-Aide
Subject: VTA 2023-05 State Tax Payment Guidance
Note: This Alert is issued as the Tax-Aide equivalent of VITA/TCE Tax Alert 2023-05 State Tax Payment Guidance.
Purpose: The purpose of CyberTax Alerts is to update, correct or clarify tax law topics. This alert is a clarification and restatement of previously conveyed materials. All volunteers should consult with their local and state leaders with any questions on the federal taxation of the state payments addressed in this alert or regarding the state tax law of their states .
IRS has ruled on payments made by 21 states during TY 2022. In general, payments that are for the promotion of the general welfare or disaster relief will not be included in income on federal tax returns. Payments that were a refund of state taxes paid are not included in income if the taxpayer did not itemize deductions or they itemized but did not receive a tax benefit. The information that follows was not included in Publication 4491-X, VITA/TCE Training Supplement.
For these 17 states, the amounts received are in the category of disaster relief payment and excludible from gross income. In the event the taxpayer received a Form 1099-MISC, Counselors should include the Form 1099-MISC and offset that income with an adjustment to gross income for a like amount. If no Form 1099-MISC was received or if a Form 1099-G was received, the item does not need to be entered in the return.
- Alaska [1]
- California
- Colorado
- Connecticut
- Delaware
- Florida
- Hawaii
- Idaho
- Illinois [2]
- Indiana
- Maine
- New Jersey
- New Mexico
- New York [2]
- Oregon
- Pennsylvania
- Rhode Island
[1] Only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend.
[2] Illinois and New York issued multiple payments and in each case one of the payments was a refund of taxes, which should be treated as noted below, and one of the payments is in the category of disaster relief payment.
For these 4 states, the payment is treated the same as a refund of state taxes and whether it is taxable depends on the tax benefit rule.
- Georgia
- Massachusetts
- South Carolina
- Virginia
If 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) the payment is not included in income for federal tax purposes.
Additional information can be found on here https://www.irs.gov/newsroom/irs-issues-guidance-on-state-tax-payments-to-help-taxpayers or by searching “IR-2023-23” on irs.gov.
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